Key Highlights

  • Many of Fed’s nine emergency programs were set to expire on or at the end of September – Not Anymore
  • Main Street Program that loans to midsize businesses to into March 2021

From the get-go, the Federal Reserve has been resolute in its commitment to keeping credit flowing through the economy by buying corporate bonds, backing up the market for asset-backed securities and offering loans to midsized businesses nearly as soon as the COVID-19 pandemic outbreak became reality in March. At that time, the central bank’s official statement was, “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.”

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Roberto Perli, a partner at Cornerstone Macro and former Fed economist, said, “The speed of the response has been unprecedentedly fast. It is a ‘whatever it takes’ moment,’ but backed by actions.” Coming from a usually staid institution, the Fed made it clear at the time that its first step efforts would be scaled up if/when necessary and be consistently present over time.

Here’s an overview of the Fed’s initial programs to steady the economy in the midst of the devastating, rampant coronavirus infections and the devastating, immediate job losses and business closings that accompanied (and still do) those infections:

  • The central bank restarted its bond-buying program initiated in the 2008 financial crisis BUT explicitly made the program unlimited “in amounts needed to support smooth market functioning” including buying government-backed debt tied with commercial real estate
  • The Primary Market Corporate Credit Facility provides bridge financing via buying bonds and extending loans to investment-grade companies for four years. The program also defers interest payments on that financing for six months that could be extended.
  • The Fed resurrected another 2008 program, the Term Asset-Backed Securities Loan Facility, to encourage lending to small businesses and households.
  • The Main Street Business Lending Program was designed to support lending to small and midsized businesses
  • The Fed slashed interest rates to near zero.
  • The Fed ramped up the size of its liquidity injections
  • The Fed is buying commercial paper.
  • The Fed has backstopped money market mutual funds.

In order to “prevent permanent damage” to the economy, as Donald L. Kohn, former vice chair of the Fed during the 2008 financial crisis, said in March, the extension of these programs will, the Fed said in a statement on July 27, “…provide certainty that the (programs) will continue to be available to help the economy recover from the COVID-19 pandemic…by stabilizing and substantially improving market functioning and enhancing the flow of credit to households, businesses, and state and local governments.”

Thanks to The New York Times.

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