Fed Takes Action to Keep Credit Flowing

Filed in Disaster Response, Economics by on March 23, 2020 0 Comments

The Federal Reserve announced today it is taking new action “to support the flow of credit to households and businesses by addressing strains in the markets for Treasury securities and agency mortgage-backed securities.”

The Fed will continue to purchase Treasury securities and mortgage-backed securities in amounts necessary “to support smooth market functioning.” The Fed had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities.

“The coronavirus pandemic is causing tremendous hardship across the United States and around the world,” the Fed said in a statement released this morning. “Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

The central bank also announced that it will:

  • Support the flow of credit to employers, consumers and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities.
  • Establish two facilities to support credit to large employers – the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
  • Establish a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.

In addition to the steps above, the Fed expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the Small Business Administration.

“The Fed’s action represents an open-ended and unlimited expansion of quantitative easing to control interest rates,” said NAHB Chief Economist Robert Dietz. “The central bank’s role of lender of last resort has been expanded to be buyer of last resort in order to support liquidity and the operation of financial markets. The Fed clearly intends to use its full powers to support the economy during an extremely disruptive phase.”

For more information and resources regarding the coronavirus, visit nahb.org/coronavirus.

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