The US Federal Reserve is taking unprecedented measures to combat the corona crisis. It is ready to buy unlimited government bonds and mortgage papers and to virtually guarantee the flow of credit to companies as well as government and private households.
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More is not possible: Fed boss Jerome Powell is ready to buy securities in unlimited amounts.
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Just in time for the start of trading on the stock exchange, the American Federal Reserve System (Fed) announced on Monday morning (local time) a new bouquet of measures to support the economy and stabilize the financial system.
The US central bank wants to buy as many US government bonds and government-guaranteed mortgage-backed securities as is necessary for the smooth functioning of the financial markets and the implementation of monetary policy.
This week alone, the Fed will be buying around $ 75 billion in government bonds and around $ 50 billion in mortgage bonds every day. From this week on, securitized commercial mortgage loans (CMBS) are also to be acquired.
So the Fed will buy well over $ 600 billion in securities this week. This overshadows all previous crisis measures, including those taken during and after the 2008/2009 financial crisis.
The Fed balance sheet has already reached a new high
in $ billion
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All members of the monetary policy committee with voting rights voted for the de facto unlimited purchases of securities.
The Fed further announced on Monday with a number of new measures to support, among other things, the credit flow to households and small companies. The virus pandemic is causing considerable hardship. The step is therefore necessary. “It has become clear that our economy will face significant disruptions.”
The central bank is launching new loan programs that will provide up to $ 300 billion in additional funds together. These facilities are guaranteed with $ 30 billion from a special US Treasury crisis fund.
Two of the facilities are aimed at large employers who typically finance themselves in the bond markets. The Primary Market Corporate Credit Facility (PMCCF) is designed to help these companies issue new bonds, while the Secondary Market Corporate Credit Facility (SMCCF) is designed to ensure liquidity on the secondary markets for outstanding corporate bonds.
A third facility is used to maintain credit flow to consumers and businesses. The Term Asset-Backed Securities Loan Facility (TALF) helps to issue securities backed by assets such as student loans, car loans or credit card debt.
The Fed is also expanding two facilities launched last week, the MMLF and the CPFF, to improve credit flow to cities and towns.
The Fed will soon announce another program that can lend to small and medium-sized companies.
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