The Federal Reserve will address the strains in the market for Treasury securities and agency mortgage-backed securities. The Fed wants to ensure a positive flow of credit to residents and businesses throughout the country.
During their announcement, they revealed they would “purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities.” The Feds also proposed an establishment of a Main Street Business Lending Program that will support lending to qualifying small and medium-sized businesses.
“The Fed’s action represents an open-ended and unlimited expansion of quantitative easing to control interest rates,” said NAHB Chief Economist Robert Dietz. “The central bank’s role of lender of last resort has been expanded to be buyer of last resort in order to support liquidity and the operation of financial markets. The Fed clearly intends to use its full powers to support the economy during an extremely disruptive phase.”
During this time, the central bank will take many steps to see this plan to fruition. They will establish new programs that will support the flow of credit to consumers, employers and businesses in the US. They will provide $300 billion in new financing and the Department of the Treasury will use the Exchange Stabilization Fund (ESF) to provide $30 billion.
There will be three facilities in total. They will create the Primary Market Corporate Credit Facility (PMCCF) which will support new bond and loan issuance. The Secondary Market Corporate Credit Facility (SMCCF) will supply liquidity for outstanding corporate bonds. The third will be called the Term Asset-Backed Securities Loan Facility (TALF) which will support the flow of credit to consumers and businesses. This third facility will issue ABS (asset-backed securities) that are supported by student loans, auto loans, credit card loans, SBA (Small Business Administration and other established assets.
“The Federal Reserve is committed to use its full range of tools to support the U.S. economy in this challenging time and thereby promote its maximum employment and price stability goals,” as stated in a press statement on the Federal Reserve website.
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