The Federal Reserve announced on Thursday that it will inject another $2.3 trillion to prop up the American economy through a series of unprecedented emergency initiatives that will extend its reach to small and mid-size businesses as well as state and municipal governments.
- The Fed will offer up to $500 billion in loans to states and municipalities through the purchase of municipal bonds and expand an existing corporate lending program (the Term Asset-Backed Securities Lending Facility) to include more classes of low-rated and riskier debt.
- Both of those actions are without precedent: the Fed has never exercised its ability to purchase muni bonds (to avoid picking and choosing the areas where it intervenes), and it has also been reluctant to wade into to lower-rated, riskier corporate credit markets.
- The Fed also released new details about its highly anticipated Main Street Lending Program, which is aimed at small and mid-sized business that are struggling because of the slowdown and don’t quality for the Small Business Administration’s emergency loans.
- The central bank will buy up to $600 billion in loans through the Main Street program (with a $75 billion injection from the Treasury), which will offer 4-year loans to companies with fewer than 10,000 workers or revenues of less than $2.5 billion.
- "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," Federal Reserve Board Chair Jerome H. Powell said in a statement. "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."
- The Fed announced earlier this week that it will also offer financing to banks making loans through the Paycheck Protection Program, a provision under the federal economic stimulus plan that sets aside $349 billion in rescue loans for small businesses through the SBA.
Crucial quote: "The Fed has launched a mind-boggling number of liquidity initiatives since the start of March and markets are somewhat inured to them at this point. The Fed is creating a powerful backdrop and it’s very hard to see the SPX hitting new lows," says Vital Knowledge founder Adam Crisafulli.
Key background: Another 6.6 million workersfiled new unemployment claims last week, according to data released by the Labor Department—it’s the latest indication of just how badly the coronavirus has damaged the American economy. All together, more than 16 million Americans have filed for temporary unemployment benefits over the last three weeks. Less than three weeks after President Trump signed the historic CARES Act into law, it’s clear that the $2 trillion-plus emergency rescue spending plan won’t be enough to prop up the economy during the coronavirus crisis, and lawmakers are already preparing to pass another stimulus package.
This article originally appeared on Forbes.
