Fed signals unlimited QE and aid for firms, cities

Darnell Taylor
March 25, 2020

Existing purchases of U.S. Treasury and mortgage-backed securities will be expanded as much as needed "to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy".

This means that the USA central bank's asset buying program will go beyond the amounts it pledged to purchase on March 15.

Over the past week, the central bank has released a volley of measures to boost liquidity in the financial markets and get cash into the hands of small businesses and consumers amid growing worries the coronavirus outbreak would wreak economic havoc across the country. Last week, the bank announced that it would buy $500 billion in treasury bonds and $200 billion in mortgage-backed securities, and then quickly exceeded half of those sums by the end of the week.

"It's their bazooka moment", said Russell Price, chief economist at Ameriprise Financial Services in Troy, Michigan. But market uncertainty is still growing, as financial institutions are moving to hoard the U.S. currency.

Almost a third of the US population is subject to new rules that close non-essential businesses and discourage people from leaving their homes in order to slow the spread of the virus.

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"The Fed is still working to maintain the flow of credit because they know what happened during the Depression (when) too many firms went under", Duy said.

"The Federal Reserve understands that this unique and evolving situation could pose temporary business disruptions and challenges that affect banks, businesses, consumers, and the economy", the central bank said in a statement. "The more damage that happens, the harder it is going to be to restart the economy".

Hundreds of thousands of people have already filed for unemployment insurance in California alone, the state's governor said at the weekend, and many analysts are projecting declines in economic output next quarter that are far worse than the steepest drop during the Great Recession.

This year's capital plans will "be used to monitor how firms are managing their capital in the current environment, planning for contingencies, and positioning themselves to continue lending to creditworthy households and businesses", the Fed said.

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