Fed Expands Stimulus Measures, QE; Will Support Corporate Credit

In its most sweeping move yet to prop up the U.S. economy amid the coronavirus pandemic and public health response, the Federal Reserve this morning unveiled several new facilities to support the flow of up to $300 billion in financing to households and businesses and committed to quantitative easing “in amounts needed” to support market functioning.

“The coronavirus pandemic is causing tremendous hardship across the United States and around the world,” the Fed said. “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.”

New efforts announced today include:

  • Two new facilities to support credit to large employers, including a Primary Market Corporate Credit Facility to bond and loan issuance to investment-grade companies with four-year bridge financing, facilitating continued payments to employees and vendors.
  • Also supporting large employers, a Secondary Market Corporate Credit Facility to provide liquidity for outstanding investment-grade corporate bonds.
  • A Term Asset-Backed Securities Loan Facility, or TALF, to suppose issuance of securities backed by student loans, auto loans, credit card debt and Small Business Administration-guaranteed loans.
  • Federal Open Market Committee purchases of commercial mortgage-backed securities along with agency MBS as part of its previously announced round of quantitative easing, which will expand as needed to support smooth market functioning.
  • Expansions to previously announced facilities, allowing the Money Market Mutual Fund Liquidity Facility to accept municipal variable rate demand notes and bank CDs as collateral, allowing the Commercial Paper Funding Facility to accept high-quality, tax-exempt commercial paper as eligible securities and lowering prices on the CPFF.

The PMCCF, SMCCF, TALF and CPFF will be supported by equity infusions from the Treasury Department’s Exchange Stabilization Fund. Companies expected to receive aid under pending legislation are not eligible for PMCCF and SMCCF participation. The Fed said it would soon announce a “Main Street Business Lending Program,” complementing SBA efforts, to support loans to small and midsize businesses.

These efforts come atop other Fed actions in recent days, including liquidity facilities for commercial paper, money market funds and primary dealers; expansion of central bank liquidity swap lines; efforts to promote use of the discount window; elimination of reserve requirements; and guidance encouraging banks to be flexible with customers affected by COVID-19.