In a major show of force and leadership, the Federal Reserve announced sweeping measures to provide support for the flow of credit to American families and businesses. While the Dow initially showed a lacklustre response, the comprehensive package lifted major global markets.
March 25, 2020 | Justin Tamang
- The Fed has committed to using its full range of tools to support households, businesses, and the United States economy amid the challenging time precipitated by the COVID-19 pandemic
- It has started an open-market and open-ended bond buying programme to ease liquidity in the financial markets and introduced a wide range of credit and funding facilities to support large employers, municipalities and small businesses
- Despite the initial lacklustre response from the Dow, the Fed’s comprehensive package buoyed major global markets
The Federal Reserve has stepped on the gas in a race against time to shore up the United States economy reeling from the COVID-19 pandemic. In a press release issued on 23 March, the Fed has committed its maximum capabilities and laid down aggressive, unprecedented measures to limit the losses of incomes and jobs as well as ensure the economy’s speedy recovery when the situation stabilises.
Trying times call for strong measures
The US central bank’s latest set of actions outline significant actions, such as open-ended quantitative easing (QE). The recent announcement removes the previously established limit of $700 billion to QE. Instead, the Fed has promised to continue buying Treasury securities and agency mortgage-backed securities “in the amounts needed to support smooth market functioning.”
In addition, the measures include the establishment of credit facilities, two of which are geared toward large companies. The Primary Market Corporate Credit Facility (PMCCF) will handle new bond and loan issuance, while the Secondary Market Corporate Credit Facility (SMCCF) aims to provide liquidity for outstanding corporate bonds. The Fed has also decided to bring back the crisis-era Term Asset-Backed Securities Loan Facility (TALF), which has the objective of supporting the flow of credit to both businesses and consumers.
The Federal Reserve wil...
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