In an unprecedented move Monday, the Federal Reserve announced an unlimited expansion of bond purchasing programs meant to stop the downward slide of the U.S. economy in the wake of the expanding coronavirus.
The 8 a.m. ET announcement, prior to the opening of the stock market, outlined a broad slate of programs designed to ensure businesses and individuals that loans will be available to help them ride out the drop in the stock market that began as the COVID-19 virus hit U.S. shores.
A major part of the plan will see the Fed purchase Treasury securities and mortgage-backed securities “in the amounts needed to support smooth market functioning,” meaning there have been no limits placed on the amount the Fed is willing to buy. The purchases, called quantitative easing, are meant to shore up buyers' and sellers' confidence in the market.
Earlier, the Fed said it would only buy $500 billion in Treasury bonds and $200 billion in mortgage-backed securities.
The Fed will also establish three new lending facilities that will provide up to $300 billion by purchasing corporate bonds, municipal bonds and securities tied to such debt as credit card, auto and real estate loans.
The Fed cannot directly loan money to companies, but can fund such lending facilities to offer loans to businesses.
Here’s what are the specifics on what the Fed plans to do in the coming days: Support for critical market functioning.
- The Federal Open Market Committee (FOMC) will purchase Treasury securities 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. The FOMC had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. In addition, the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.
- Supporting the flow of credit to employers, consumers and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities.
- Establishment of two facilities to support credit to large employers -- the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
- Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
- Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
- Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.
What does that mean for consumers? You can expect to see low, maybe historically low, mortgage rates. If the company you work for is just close to closing or had to close, they will soon be able to get some funding to stay in business or open back up for business. Other loans should be available and at a cheaper interest rate. One downside could be if you are a saver. The rate banks offer on savings accounts will likely be around zero.