Last Updated on March 31, 2020 by Mark P.
This crisis is finally being treated seriously by both the federal government and the private sector, but what impacts everyone equally are the decisions the Federal Reserve makes during this time, which will affect our country long term for years to come.
According to Yahoo! Finance, the Federal Reserve is going to take ‘aggressive’ action to back corporate debt markets as well as mainstreet. Yahoo! Reporter Brian Cheung says, “The Federal Reserve called a third emergency meeting to combat the economic impact of the novel coronavirus” as well as new policies and “extensive” proposals. “The Fed also said a direct lending program to Main Street businesses will be announced soon.”
This comes at a time when this widespread health scare and indefinite closing of thousands of small businesses and large corporations are wreaking havoc on American markets. This has pushed the Fed to “expand the scope of its asset purchases under its quantitative easing [inflation] program and announced four new measures to grease the commercial paper, corporate bond, and even ETF markets.
What this means is that the Fed has also committed to the “establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium-sized businesses,” similar to programs from the Small Business Administration.” This is adding to the hope that this decision will provide an estimated $300 billion in “new financing available to businesses.”
This new policy by the Fed also means the suspension of its previous guidance regarding inflation which seeks to buy “at least” $500 billion in U.S. Treasuries and $200 billion in agency-backed mortgage-backed securities “over the coming months.” Currently, the bank also says that it will also add securities “in the amounts needed,” and “will also expand the scope of those purchases to include agency commercial mortgage-backed securities.”
With this action by the Fed as well as the coronavirus stimulus bill, interest rates will stay at around 0% to help with lending, and with quantitative easing more liquidity will be injected into the economy in order to boost aggregate demand. This will help the economy boost activity as we try and pull ourselves out of this health crisis and coming recession.