Saying “aggressive action” was needed to soften the blow to the economy from the coronavirus pandemic, the Federal Reserve on Monday announced it would purchase an unlimited amount of Treasurys and mortgage-backed securities in order to support the financial market.
The Fed said it would buy assets “in the amounts needed” to support smooth market functioning and effective transmission of monetary policy. The Fed had previous set a $700 billion limit for asset purchases.
In addition, the Fed announced several new lending programs worth $300 billion to support all corners of the financial markets.
The Fed said it has become clear the U.S. economy will face severe disruptions.
“Aggressive effort must be taken across the public and private sectors to limit the losses to jobs and income and to promote a swift recovery once the disruptions abate,” the central bank said in a statement.
In a separate announcement, the New York Fed said it will buy $75 billion of Treasury securities and approximately $50 billion of agency mortgage-backed securities each business day this week “subject to reasonable prices.” The New York Fed also said it would start purchasing agency commercial mortgage-backed securities this week.
In addition to QE, the Fed set up three new emergency lending programs. Two of the loan programs are aimed a the market for corporate credit — the Primary Market Corporate Credit Facility, for new bond and loan issuances, and the Secondary Market Corporate Credit Facility to provide liquidity for outstanding corporate bonds.
A third facility, the Term Asset-Backed Securities Loan Facility, or TALF, will enable the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration.
To help the flow of credit to municipalities, the Fed expanding its already-announced Money Market Mutual Fund Liquidity Facility to include a wider range of securities, including municipal variable rate demand notes and bank certificates of deposits.
The Fed’s commercial paper facility will also be expanded to include high-quality, tax-exempt commercial paper.
The central bank said it expects to soon announce the establishment of a Main Street lending program to support small and medium sized business. The Fed said it would provide bridge financing of four years to investment grade companies.
Lawmakers are working on a stimulus package that includes using the Fed to get lending out to firms hurt by the shutdown of the U.S. economy. Treasury Secretary Steven Mnuchin said this program could result in $4 trillion of liquidity.