The Fed continues to struggle to keep the economy afloat

Andrew Cummings
March 25, 2020

The Federal Reserve tapped BlackRock shepherd several debt-buying programs on behalf of the USA central bank as it works to revive an economy reeling from the spread of coronavirus.

In a statement the Fed said the effort, approved unanimously by members of the Federal Open Market Committee, was taken because "it has become clear that our economy will face severe disruptions" as a result of the health crisis. The blue-chip index sank 7.4 per cent on Monday in its biggest one-day drop since a record 8.3 per cent plunge on Oct 24, 2008, during the global financial crisis.

The Fed's move to tap BlackRock carries echoes of the last US financial crisis. Many corporations, and city and state governments, are in desperate need of loans to pay bills and maintain operations as their revenue from customers or taxpayers collapses. In the meantime, large businesses have been drawing, as much as they can, on their existing borrowing relationships with banks.

The new programs mean the Fed will lend against student loans, credit card loans, and US government backed-loans to small businesses, and buy bonds of larger employers and make loans to them in what amounts to four years of bridge financing.

The steps include establishment of new programs that will lend against student loans, credit card loans, and USA government backed-loans to small businesses, as well as new programs to buy bonds of larger employers and make loans to them.

"Getting to the corporate bond market was critical".

The Fed also "expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts" by the Small Business Administration.

The central bank's actions increase pressure on Congress to approve a almost US$2-trillion stimulus package that stalled late Sunday.

The Fed also said it will purchase agency commercial mortgage-backed securities as part of an expansion of its asset purchases, known as "quantitative easing".

The Federal Reserve will temporarily stop all examination activity for banks with less than $100 billion of assets as it shifts supervisory priorities due to the coronavirus pandemic, the central bank said Tuesday. Joe Brusuelas, chief economist at RSM, a tax and advisory firm, said that if Congress can pass the legislation and have it signed into law by today, Tuesday, banks could start making loans to small and medium-sized businesses, with the Fed's support, by Friday.

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