Fed announces aggressive actions to increase liquidity amid viral crisis
WASHINGTON – The Federal Reserve on Monday pledged to buy more treasury and mortgage-backed securities, as well as provide $ 300 billion in new financing for credit facilities, as the coronavirus puts the economy on hold world in danger.
The virus “is causing enormous hardship in the United States and around the world,” the Fed said in a press release describing its latest moves to shore up the liquidity and credit markets.
“While great uncertainty remains, it has become clear that our economy will face serious disruption,” the Fed said. “Aggressive efforts must be made in the public and private sectors to limit the loss of jobs and income and to promote a rapid recovery once the disruptions have abated.”
The Fed sets up two new credit facilities to provide credit to large businesses: the primary market business credit facility for new bond and loan issues and the secondary market business credit facility , which focuses on outstanding corporate bonds.
The Fed also announced the creation of the term asset-backed securities lending facility to support the flow of credit to households and businesses. This facility will support the issuance of asset-backed securities backed by student loans, auto loans, credit card loans and small business administration guaranteed loans, providing some relief to these borrowers.
The central bank is also extending two of the credit facilities announced last week. The liquidity facility of money market mutual funds will be broadened to include a broader range of securities, including municipal variable rate demand notes and bank certificates of deposit.
The Fed is also reducing the price of its commercial paper financing facility and expanding it to include high-quality, tax-exempt commercial paper as qualifying securities.
In addition, the Fed also hopes to announce soon the creation of a loan program on the main street to allow lending to small and medium-sized businesses.
“These actions reinforce measures taken by the Federal Reserve over the past week to support the flow of credit to households and businesses,” the agency said in a statement.
And although the Fed announced last week that it would make $ 700 billion in asset purchases – $ 500 billion in Treasury securities and $ 200 billion in mortgage-backed securities – the agency now agrees to purchase both “in the amounts necessary to support the proper functioning of the market.” . ”
Treasury Secretary Steven Mnuchin said in a statement that policymakers “are determined to provide assistance to American workers and businesses, especially small and medium-sized businesses and critical industries that are most affected by the coronavirus “.
“We will take whatever steps are necessary to support them and protect the US economy,” Mnuchin said.