Jerome Powell, the Chairman of the U.S. Federal Reserve/Bloombergby Bloomberg
The US Federal Reserve said that it will buy unlimited amounts of Treasury bonds and mortgage-backed securities to keep borrowing costs at rock-bottom levels and to help ensure chaotic markets function properly.
The Fed is also setting up programmes to ensure credit flows to corporations as well as state and local governments.
The US central bank, racing again to contain mounting economic and financial-market fallout from the coronavirus, unveiled a sweeping series of measures that pushed the 106-year old central bank deeper into uncharted territory.
The regulator’s latest moves were announced as investors are waiting for US lawmakers to deliver a multi-trillion-dollar package of coronavirus support, which failed to come together when Democrats objected that it did not do enough for average Americans.
The Fed’s latest announcement follows several steps taken by Chairman Jerome Powell in the past three weeks that would have been unthinkable just months ago and represent a dramatic reaction to the sudden stop inflicted on the economy by the contagion and by the subsequent panic among investors.
Separately, G20 finance ministers and central bank chiefs joined an emergency call to work on a joint response to the economic blow dealt by the pandemic.
The US economy is reeling as cases rise and the death toll mounts. The Fed created two more programmes to support large employers—a primary market corporate credit facility for new bond and loan issuance and a secondary market corporate credit facility to provide liquidity for outstanding corporate bonds.
Moreover, another programme, a term asset-backed securities loan facility, will enable the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the small business administration and certain other assets.
The central bank also said that it would expand the existing money market mutual fund liquidity facility to include a wider range of securities, including municipal variable-rate demand notes
The Fed plans to expand the existing commercial paper funding facility to also include high-quality municipal debt, another move to help cash-strapped states and cities.