The Fed announces $1.5 trillion in capital injections to combat coronavirus fallout and highly unusual disruptions

REUTERS/Brendan McDermid

• The Federal Reserve Bank of New York on Thursday announced trillions of dollars’ worth of new capital injections to calm Treasury-bill liquidity issues and boost economic activity amid coronavirus risks.
• The central bank said it would add $500 billion to money markets on Thursday afternoon through a three-month repo operation.
• One-month and three-month repos for $500 billion each will be conducted on Friday and continue to be offered weekly through the month, the bank added.
• That amounts to a $1.5 trillion capital injection this week alone.
• “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the bank said.
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The Federal Reserve Bank of New York will start adding fresh capital to money markets on Thursday to pad against coronavirus risks and ease stresses on the Treasury-bill market.

The extraordinary funding measure first involves a $500 billion injection at 1:30 p.m. ET on Thursday, the bank said. The cash will be added to money markets through a three-month market repurchase agreement, or repo operation.

One-month and three-month repos for $500 billion each will be conducted on Friday and continue to be offered weekly through the calendar month, the bank added.

The central bank said it would also expand its $60 billion reserve-management purchases to buy up “a range of maturities” roughly matching that seen in Treasury assets outstanding. Securities targeted include Treasury bills, floating-rate notes, and nominal coupons. The first such purchase will begin Friday, the bank said.

Read more: Famed economist David Rosenberg called the housing bubble. Now he tells us why the oil-price war will be more damaging than the coronavirus — and outlines a scenario where stocks plunge another 13%.

The Fed’s previously scheduled daily overnight and two-week repos will still take place through the end of the week, adding as much as $220 billion to money markets.

The massive stimulus measure was made in accordance with the Federal Open Market Committee and in response to unprecedented liquidity issues in the Treasury-bond market, the New York Fed said.

“These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the bank said.

The announcement fueled a sharp uptick in the ailing stock market on Thursday afternoon. Stocks sat more than 8% lower before the Fed’s statement pared some losses.

Read more: Coronavirus shock is pushing highly indebted ‘zombie’ companies toward financial ruin — and a risky $1 trillion market is already showing the damage a recession would do

By the end of the central bank’s Thursday operation, the Fed’s balance sheet will have reached an all-time high. The magnitude of the Fed’s new liquidity measures signals a “full-blown crisis response operation,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in an emailed statement.

The FOMC is likely to slash its interest rate by 50 basis points at its meeting next week to further ease money-market stresses before the federal government issues its own aid, he added.

“Now it’s up to Congress to fire the fiscal bazooka, the bigger and quicker the better,” Shepherdson said.

Now read more markets coverage from Markets Insider and Business Insider:

The New York Stock Exchange is preparing to close its trading floor as the coronavirus sweeps through New York

Treasury liquidity is evaporating as traders need it most — endangering a $50 trillion debt market

Famed economist David Rosenberg called the housing bubble. Now he tells us why the oil-price war will be more damaging than the coronavirus — and outlines a scenario where stocks plunge another 13%.