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U.S. Fed aims 'bazooka' to backstop coronavirus-hit economy

Published 03/23/2020, 07:16 PM
Updated 03/23/2020, 08:10 AM
© Reuters. FILE PHOTO: Federal Reserve building pictured in Washington

© Reuters. FILE PHOTO: Federal Reserve building pictured in Washington

By Howard Schneider and Ann Saphir

(Reuters) - The U.S. Federal Reserve on Monday rolled out an extraordinary array of programs to backstop an economy reeling from sweeping restrictions on commerce that scientists say are needed to slow the coronavirus pandemic and ultimately keep more people safe.

For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and "soon" will roll out a program to get credit to small and medium-sized business. It also said it will expand its asset purchases by as much as needed to stabilise financial markets.

The series of actions marks a massive intervention by the U.S. central bank beyond the financial markets, where it has so far concentrated its firepower, into the real U.S. economy.

"It's their bazooka moment," said Russell Price, chief economist at Ameriprise Financial (NYSE:AMP) Services in Troy, Michigan.

Nearly a third of the U.S. population has been urged to stay indoors as governors from California to New York mandate "social distancing" and the shutdown of non-essential businesses to slow the person-to-person spread of the virus.

With customers disappearing rapidly, businesses starved of cash may be able to tap into the Fed's "lifeline" to stay afloat while the shutdowns continue, said University of Oregon economics professor Tim Duy.

"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 more damage that happens, the harder it is going to be to restart the economy."

Still, he said, without massive fiscal aid such efforts won't be enough to stem the tide of what economists polled by Reuters estimate could be a million jobless claims logged across the nation inside of a week, with more to come.

U.S. stocks slid Monday and yields on U.S. Treasuries fell after the announcement, as U.S. lawmakers struggled to reach agreement on a far-reaching coronavirus stimulus package on Monday after falling short on a deal over the weekend.

U.S. corporate credit investors for their part welcomed the Fed's move, sending up prices of U.S. investment-grade corporate bond exchange-traded funds.

Under the new programs, the Fed will lend against student loans, credit card loans, and U.S. government backed-loans to small businesses, and back loans to larger employers in what amounts to four years of bridge financing.

Hundreds of thousands of people have already filed for unemployment insurance in California alone, the state's governor said at the weekend. Many analysts are projecting the U.S. economy to shrink faster next quarter than it did in any quarter during the Great Recession.

In a statement the Fed said the effort, approved unanimously by members of the Federal Open Market Committee, was taken because "it has become clear that our economy will face severe disruptions" as a result of the health crisis. "Our nation's first priority is to care for those afflicted and to limit the further spread of the virus."

The Fed last week slashed borrowing costs to zero and took other emergency steps to keep the commercial paper, Treasury and foreign dollar funding markets functional.

“This is the Fed’s all-out effort to ensure that the business sector and households can continue on,” said Sam Bullard, senior economist for Wells Fargo (NYSE:WFC) Securities.

© Reuters. FILE PHOTO: Federal Reserve building pictured in Washington

“The Fed is doing everything they can."

Latest comments

well, either this will help or it won't end the Fed will own all the businesses. I'm starting to think that maybe it's better that they don't do this...
bazooka is using for city war, is it enough for covid19 worldwar!!
happy trails
Holly molly GOLD won't STOP this time!!!
Hi, Jordan, could you please tell me which school?
Hi, Jordan, could you please tell me which school you attended?
even at -negative rate people have to pay back... how to generate monthly income to payback ?
then u want the loan to be free??? why dont u start your government.
, I don't want anything to be free. I want stability in interest rates so I can project my business.
$500 slushfund for corporate. What's new?
why is dollar so strong if they print it endlessly???
because of us$ Monopoly, soon the world will ignore us$. world is forced and cant afford to buy oil in us$
the world needs US dollars.
because us still strong after epidemic (they believe that!). cash is king, survival is key, after crash usd can buy assets to restart.
The High family's now own America, now that the Feds are in this business, it's only a matter of time before they start to call in the loans if they so deem so. The Fed is a private corporations who lends money to world government / Large Banks Banks.
this is really unique... a little scary, that means that the Rothchild's will own America... this is a little scary... the fed is a private corporation, it's not a government organizations...lol, this is really getting scary...
Blockchain or Gold soon...Currency is shafted.
trump is pushing his bankruptcy techniques on our country
Let’s hear your plan, genius.
I thought they already used their bazooka twice according to investing.com. And multiple articles saying nothing is left....
They can do nothing about this virus. Fed is not a vaccine of corona it should be developed or else anyother tablet that make poeple beleive that we are safe. Look at the frustration and panic in countries people are afraid of touching anything
Buckle down Folks! We have a TOUGH RIDE????
LOL! Are you telling us or asking us?
Leadership needs to be replaced. This administration is worthless.
Got better plans?
what if the business to which funds are lent goes bankrupt? what if bonds purchased by the Govt from companies becomes junk?
This is the End Game of the FED - QE Infinity via these new programs for everyone. Dollar is going to become the new toilet paper.
Best Comment
WhatThe 1+ when he posted: You shall be a wage slave with debt forever!! SERF!!
FED has no money. it will take over everything for free
Who was it that said: "The devil is in the details" "Trust but verify" Given the FED's record, I don't trust that the details will actually fix the problems nor expect to be able to verify the details until "the water is under the bridge".
Not sure what is the right action, but every time fed increases the aid it takes the market to green territory then brings it down even harder. it's a terrible situation with no quick solutions. looks like we will have to go through recession before the economy recovers itself.
Youre correct. This is what a bear market looks like and plays out. The bounces will lure people in and then we get washed out again...and so on.
Commercial banks cannot be trusted to implement this efficiently and equitably. Defer tax liabilities if all earners/businesses with less than $1 m for three years, condition loans on keeping employees on payroll as long as the pandemic lasts and pay80% of their paycheck (offset by their annual leave for 2 years, and if they do that part if loan can be converted into grant)...
The FED has become the Rich ID**T player in the poker table. He plays with an open deck and announced he is going to double each gamble.He will now buy the toxic waste every one got stuck with  and given everybody a way out except himself. Of course it all comes on the expense of every american and the value of the dollar. It will take time but everyone will understand the folly of the announcement and the market will crash even harder. The FED uses all the wrong tools in the wrong time, it's like there is a monkey in the head which is randomly pressing buttons. The forgot the base of the economy is "work creating value" and not buying limitless trash creates value
or cash will get double the price of eclectic electric impulses?
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