The Federal Reserve issued its most aggressive intervention to date to help markets struggling with coronavirus uncertainty to recover, including an expansion into its asset purchases with an unlimited commitment to buy agency mortgage-backed securities, and the establishment of a new loan program for small businesses.
“The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus,” the Fed said in a statement. “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 new, open-ended commitment to further the asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy” comes after the Fed promised to buying at least $500 billion in Treasury securities and $200 billion in mortgage-backed securities earlier this month.
Other measures include “supporting the flow of credit to employers, consumers, and businesses” with $300 billion in new funding. The Fed also announced the reinstatement of the Term Asset-Backed Loan Facility, which was introduced during the 2008 financial crisis, to help businesses and individuals access credit, as well as two facilities to support credit to large employers and a new “Main Street Business Lending Program” to complement the Small Business Administration with new lines of credit for small businesses.
The futures markets surged in response, with the Dow Jones Industrial Average futures gaining over 600 points after falling five percent overnight following news that Democrats blocked the massive phase-three coronavirus funding package drafted by Republicans.