Federal Reserve Unveils 'Extensive New Measures' To Bolster U.S. Economy

Daniel Fowler
March 23, 2020

The Fed also called on the public and private sectors to make aggressive efforts to curb job and income losses and promote a swift recovery once virus-based disruptions abate.

The Fed announced it would purchase required amounts of Treasury and agency mortgage-backed securities to support smooth market functioning and monetary policy.

"While great uncertainty remains, it has become clear that our economy will face severe disruptions", the Federal Reserve said as it revealed the plans.

In addition, the Fed announced $300 billion in new financing to facilitate credit flow to employers, consumers and businesses.

The Fed also announced the creation of the Term Asset-Backed Securities Loan Facility to back the flow of credit to households and businesses.

"The Federal Reserve is committed to using its full range of tools to support households, businesses, and the USA economy overall in this challenging time", the central bank said in a statement.

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Dow futures briefly hit their "limit down" overnight, but stocks ripped higher on Monday morning after the Federal Reserve lifted restrictions on its quantitative easing asset purchases and launched multiple new stimulus programs aimed at lending to small businesses and maintaining liquidity in the credit markets.

The Term Asset-Backed Securities Loan Facility (TALF): under which the Federal Reserve Bank of NY will provide loans to US companies that are secured by certain eligible consumer and small business asset-backed securities, such as student loans, auto and credit card loans, loans guaranteed by the Small Business Administration, and certain other assets. A rush for safe-haven assets like government bonds caused U.S. Treasury yields to fall on Monday. USA equity futures also reversed a decline, Treasuries extended an advance, oil jumped after the Fed pledged asset purchases with no limit to support markets.

USA shares continued their slide after the announcement, as US lawmakers struggled to attain settlement on a far-reaching coronavirus stimulus package deal on Monday after failing to attain a deal over the weekend.

Because the Fed does not have the authority to take on corporate bonds onto its balance sheet, it worked with the U.S. Treasury to open special goal vehicles (SPVs) that then purchase assets through the PMCCF, SMCCF, and previously announced Commercial Paper Funding Facility (CPFF) programs.

Craig Erlam, Senior Market Analyst at OANDA Europe, said Congress needs to follow the Fed's example and get an aggressive stimulus package passed as soon as possible.

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