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The Fed Goes Nuclear

edited March 23 in Other Investing
It was my sense the Fed would be deploying new programs this time around. This report discusses some of them (still no direct stock market purchases as far as I can tell)....

The Federal Open Market Committee (FOMC) announced a series of steps this morning designed to support the flow of credit in the U.S. economy. The actions taken are breath-taking in their scope. Indeed, these steps surpass in breadth and depth the measures that the Fed created in the midst of the financial crisis a decade ago. If the Fed pulled out a monetary policy "bazooka" during that crisis, then the steps it announced this morning are the central bank equivalent of "going nuclear."

.....For starters, the committee announced this morning that it will be creating two facilities to support credit to large employers. The Primary Market Corporate Credit Facility (PMCCF) will support the issuance of investment grade corporate bonds, and the Secondary Market Corporate Credit Facility (SMCCF) is aimed at provide liquidity in the investment grade corporate bond market. This is the first time, of which we are aware, that the Fed has stepped in to provide direct support to the corporate bond market.

...the Fed created the Money Market Mutual Fund Liquidity Facility (MMLF) last week to support money market funds. The Fed has broadened the MMLF to include variable rate notes that are issued by municipalities. In addition, the Fed will also support municipal financing via its expansion of the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper.

Most incredibly, the committee announced that it will soon be releasing details on the Main Street Business Lending Program that is intended to support lending to small-and-medium sized businesses. This program will support efforts that are underway by the Small Business Administration (SBA) to keep credit flowing to businesses that rely primarily on bank lending for financing.


https://fxstreet.com/analysis/the-fed-goes-nuclear-202003231542

Comments

  • Courageous thing to do.
  • I posted the below last week, but it was likely not viewed by most. Now that we have arrived at QEE (Quantitative Easing Extreme) .....thank you for your indulgence.

    ----------------------------------------------------------------------------------------------------------------------------------------

    I posted this back in 2011; or there about. I need some comic relief again, don't know about you.
    Are we all going to receive another quantitative easing? I don't know. What's left to do?

    Sadly, Mr. Clarke (without eye glasses) passed in 2017. These two put so many financial events in a comic light, based in truth.
    NOTE: you may need to click the play arrow two times

  • Seems like a smart idea would have been to declare a 3 month holiday on all rents and mortgages. Takes pressure off small businesses, alleviates anxiety, and probably easier to manage than all this other stuff.
  • Seems like a smart idea would have been to declare a 3 month holiday on all rents and mortgages. Takes pressure off small businesses, alleviates anxiety, and probably easier to manage than all this other stuff.

    You mean to defer rent or expunge it during this time?
  • Defer for sure; but I was thinking expunge as a way of injecting $ into the system. And, it's not like the banks don't owe the American taxpayer for 2008.

    Whether or not people use the saved $ wisely is another matter, but we'd have the same issue with sending out $1000 checks.
  • Here is an article that discusses some of the reasons the Powell Put Act 2 announcement on Monday may turn out to have been significant....
    Powell’s message is that the Fed’s support for U.S. business is unlimited, “in the amounts needed to support smooth market functioning,” as a Fed statement Monday put it. His basic rationale is simple: Nobody caused this crisis, and nobody is to blame. The government-ordered lockdown affects every company and worker, and the government should protect people until the crisis eases. Any other concern is secondary.
    https://washingtonpost.com/opinions/2020/03/24/one-institution-washington-is-working-fed/


  • His reasoning is mis-guided. In this consumer-based economy, people without jobs simply cannot afford to spend and propping up the business is not all that helpful. There has to be string attach to bailout the corporations so that the $ does not go to stock buybacks and large bonus to the executives.

    Case in point - Boeing does not want the government to take stakes (owning stocks) in the company as part of the bailout.

    Please see the article I posted earlier on what Denmark is proposing to do.
  • @Sven Its my understanding the massive stimulus bill the Senate will vote on today will provide substantial cash to individual households including $1200 checks to many individuals and an additional $600 per week for 4 months in unemployment insurance coverage. And, they are already talking about a follow up stimulus program. So, the fiscal policy people are acting on that front. The Fed is demonstrating it is all in on its side and will provide massive support to the economy (for better or worse in the long run) in ways the legislative branch can not. That's the takeaway message I am getting out of all of this....
  • In the Senate bill the loans to small business will be forgiven if those businesses continue to pay their employees during this situation. That struck me as very good thinking, as it potentially allows the businesses to maintain relations with their employees, and simplifies getting cash into their hands without creating another new and massive government bureaucracy.
  • Powell is appearing on mainstream media providing reassurance the public. Here is a little detail:
    Jerome Powell says the Federal Reserve would provide essentially unlimited lending to support the economy as long as it is damaged by the viral outbreak.

    The economic rescue bill approved by the Senate early Thursday includes $425 billion that the Treasury could use to backstop the Fed. That would allow the Fed to boost its lending programs to an astronomical $4.25 trillion.

    “Wherever ... credit is not flowing, we have the ability in these unique circumstances to temporarily step in and provide those loans and we will keep doing that, aggressively and forthrightly," Powell said.

    When asked if the Fed would run out of ammunition to support the economy, Powell said no.

    https://marketbeat.com/articles/fed-chair-powell-says-will-provide-nearly-unlimited-lending-2020-03-26/
  • edited March 26
    Here are some possible next steps by the Fed. (Its sounding more and more like the low rate world will be with us at least until the crisis passes) --
    Potential Monetary Response

    • Forward guidance to signal FFR will remain at 0.00% well beyond the
    current crisis
    • Purchase short-term municipal bonds (six months or less to maturity)
    • Request authority from Congress to purchase a broader array of
    corporate and/or municipal bonds
    • Reinstate the Term Securities Lending Facility (TSLF)
    • Adopt a negative fed funds rate, though we view this as unlikely
    https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economics/policy-response-2020.pdf
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