WASHINGTON — The Federal Reserve on Monday committed to purchasing more Treasury and mortgage-backed securities as well as providing $300 billion in new financing for credit facilities as the coronavirus puts the global economy at risk.
The virus is “causing tremendous hardship across the United States and around the world,” the Fed said in a press release outlining its latest actions to shore up the liquidity and credit markets.
“While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the Fed said. “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.”
The Fed is establishing two new credit facilities aimed at providing credit to large businesses: the Primary Market Corporate Credit Facility for new bond and loan issuance and the Secondary Market Corporate Credit Facility, which is focused on outstanding corporate bonds.
The Fed also announced the creation of the Term Asset-Backed Securities Loan Facility to back the flow of credit to households and businesses. That facility will support the issuance of asset-backed securities backed by student loans, auto loans, credit card loans and Small Business Administration-guaranteed loans, which will offer some relief to those borrowers.
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A complete disconnect between liquidity providers and seekers exposed the market’s inefficiencies: an asset class dominated by a limited investor base—retail investors—has grown increasingly concentrated.
The central bank is also expanding two of the credit facilities it announced last week. The Money Market Mutual Fund Liquidity Facility will be expanded to include a wider range of securities, including municipal variable rate demand notes and bank certificates of deposit.
The Fed is also reducing the pricing of its Commercial Paper Funding Facility, and expanding it to include high-quality, tax-exempt commercial paper as eligible securities.
In addition, the Fed also hopes to announce shortly the creation of a Main Street Lending Program to enable lending to small and medium-sized businesses.
“These actions augment the measures taken by the Federal Reserve over the past week to support the flow of credit to households and businesses,” the agency said in a statement.
And although the Fed had said just last week it would conduct $700 billion in asset purchases — $500 billion of Treasury securities and $200 billion of mortgage-backed securities— the agency is now committing to purchasing both “in the amounts needed to support smooth market functioning.”
Treasury Secretary Steven Mnuchin said in a statement that policymakers "are committed to providing relief for American workers and businesses, particularly small and medium size businesses and critical industries that are most impacted by the coronavirus."
"We will take all necessary steps to support them and protect the U.S. economy,” Mnuchin said.