The Federal Reserve has moved to provide an additional $2.3tn in loans to shore up the US economy during the coronavirus pandemic, by setting up new facilities to deliver credit to small businesses and municipalities, and expanding measures introduced last month to back corporate debt markets.
“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” Jay Powell, the Fed chairman, said on Thursday.
“The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible,” he added,
Mr Powell is expected to make remarks at 10am on Thursday on the central bank’s approach to the coronavirus crisis.
In a statement on Thursday morning, the Fed confirmed that it would be setting up a tool to support a $350bn lending fund that is part of a $2tn fiscal stimulus package enacted last month.
The move should help banks more rapidly move the loans off their balance sheets, improving participation in the plan. The Fed said it would “extend credit to eligible financial institutions that originate [small business] loans, taking the loans as collateral at face value”.
The Fed also said it would create a separate lending programme for “Main Street” — which was also authorised in the stimulus legislation — through which it will buy up to $600bn in loans with a backing of $75bn from the Treasury department.
The Fed has been under pressure to offer more backing for struggling state and local governments as well — and said it would also be setting up a facility to buy municipal debt to help them “manage cash flow stresses” The “Municipal Liquidity Facility” would offer up to $500bn in loans, with $35bn from the Treasury.
The Fed said it would purchase up to $500bn of short-term notes directly from US states, including Washington DC, counties with a population of at least 2m people and cities with at least 1m residents.
The Fed stopped short of directly intervening in the primary and secondary markets for municipal debt, where states and cities raise cash, but it said it would “closely monitor conditions” in those markets and “will evaluate whether additional measures are needed to support the flow of credit and liquidity to state and local governments”.
In addition to setting up new lending tools, the Fed said it would also increase the size and scope of facilities announced last month aimed at helping corporate credit markets. It had initially announced its historic step to shore up those markets last month — a move it had not done during the 2008 financial crisis.
On Thursday, the central bank said it would also expand the crisis-era TALF facility, which gives it the ability to buy securities backed by student, car and credit card loans, as well as loans to businesses through the Small Business Administration. Now, triple A-rated commercial mortgage-backed securities and triple-A-rated newly issued collateralised loan obligations, or investment vehicles that contain pools of leveraged loans, can be used as collateral.
According to the Fed, these programmes will support up to $850bn in credit, backed by $85bn from the Treasury department.
