Fed announces unlimited bond-buying, sets up program to stimulate companies and local governments in order to combat the coronavirus fallout

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• The Federal Reserve on Monday announced new programs to aid the US economy amid the coronavirus pandemic.
• The programs include unlimited bond-buying and the establishment of three facilities to support businesses, consumers, and employers.
• “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 Fed said in a statement.
• Read more on Business Insider.

The Federal Reserve on Monday announced an array of new programs intended to prop up the US economy, stimulate companies and local governments, and smooth markets and the flow of credit amid the coronavirus outbreak.

“While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the Fed said in a statement. “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 Fed said it would purchase Treasuries and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.” It said it would also buy commercial mortgage-backed securities. Previously, the Fed announced it would buy $500 billion in Treasury securities and at least $200 billion in mortgage-backed securities.

The move into corporate bonds is an unprecedented action from the Fed to smooth a part of the market that has been hit hard by the coronavirus pandemic.

Read more: ‘Massive implications’: One market bear breaks down how the Fed’s unprecedented actions before the coronavirus turmoil may have opened the door to a 72% crash

To support businesses, consumers, and employers, the Fed will provide up to $300 billion in new financing, including $30 billion from the Department of the Treasury, using the Exchange Stabilization Fund, it said.

The Fed said it would also establish two facilities to support credit to large employers and a third facility to support the flow of credit to consumers and businesses. The Term Asset-Backed Securities Loan Facility “will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets,” it said.

In addition, the Fed said it expected to soon announce a Main Street Business Lending Program “to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.”

“The Fed’s announcement that it will purchase an unlimited amount of bonds is undoubtedly significant,” and overtake Great Financial Crisis quantitative easing measures in one fell swoop, Seema Shah, chief strategist at Principal Global Investors, told Business Insider. 

“In addition, its programs to directly provide aid to employers and households, as well as plans targeted at supporting small and medium sized businesses, will help fill in the sinkhole left by Congress’ failure to pass a much-needed fiscal stimulus bill,” she said. 

US stock futures initially surged after the Fed’s announcement, but fell at the open of trading Monday morning as investors are still waiting on congress to approve a spending package to aid economic fallout amid the crisis. 

“While central bank and fiscal action is absolutely crucial, the key requirement to stop the market rout is investors believing the virus is behind us,” Shah said. “Until that happens, central bank and fiscal action will quickly become out-dated, requiring policymakers to repeatedly re-visit and multiply their stimulus plans.”

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