The Federal Reserve introduced important measures on Monday that will be key for keeping the corporate debt markets in check as the coronavirus from China continues to wreak havoc on the broader market. This decisions comes after the both the S&P 500 and Dow Jones Industrial Average both experienced their worst one-week declines since 2008.
These “aggressive efforts” that the Fed are taking include a handful of vital steps, including purchasing Treasury 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.” In other words, the purchasing power for the Federal Reserve is unlimited.
Moreover, the Fed introduced three new lending facilities in order to help ease market sentiment. This trio includes the Term Asset-Backed Securities Lending Facility (TALF), which the Federal Reserve used in 2008 to prop up consumer and business credit markets.
“The coronavirus pandemic is causing tremendous hardship across the United States and around the world,” the Fed said. “Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus.”
Overall, the Fed is expecting these efforts to provide around $300 billion in new financing. And, in addition to the stated moves, the Federal Reserve expects to soon announce the creation of a “Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses.”
“While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the Fed said. “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.”