Fed opens unlimited 'quantitative easing' to stabilize US economy

Darnell Taylor
March 24, 2020

The Federal Reserve launched an unprecedented effort on Monday to flood the U.S. economy with money amid the chaos caused by the coronavirus pandemic, as Congress debated a rescue plan for American workers and companies.

The Fed said it will no longer quantify its quantitative easing, seemingly pledging to devote any amount of money necessary to buying assets in the near-term.

The Fed is creating new programs for the almost 5,200 FDIC- insured US banks, as well as finance companies and corporations to stave off business bankruptcies and keep employee paychecks flowing.

The Fed estimates the impact of its measures to provide about $300 billion in new financing available to businesses.

"While great uncertainty remains, it has become clear that our economy will face severe disruptions. 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 statement said.

The Financial Times said the Fed, which also unveiled a program to support lending to small-and-medium sized businesses, had "upped the ante" after having failed over the past week to reassure markets with a previous expansion of quantitative easing in response to coronavirus crisis.

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Like patients around the world battling the disease itself, the U.S. economy is on life support, with some forecasters projecting a 14 percent contraction in the April-June quarter while the global economy could shrink 1.5 percent this year.

James Bullard, president of the St. Louis branch of the US Federal Reserve Bank, predicted the USA unemployment rate might hit 30% in the second quarter of this year, Bloomberg News reports.

The New York Fed will lend to a "special goal vehicle", which will then buy bonds and issue loans to companies. It will also expand the so-called Commercial Paper Funding Facility it announced last week, in which the bank will buy debt from eligible companies in a tight credit market.

Under the Fed's authority granted by Section 13 (3) of the Federal Reserve Act, the central bank then lends to the SPV to support the vehicle's purchases.

Through the Term Asset-backed securities Loan Facility (TALF), the Fed is accepting bundled groups of assets secured by auto loans, credit cards, student loans and other types of credit.

Furthermore, the spot markets opened in the negative territory despite the Fed's announcement.

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