Fed Announces New Stimulus

As another 6.6 million Americans filed for unemployment insurance, the Federal Reserve announced an additional $2.3 Trillion of liquidity for consumers, businesses, and state and local governments this morning, April 9th. The stock market rose at the open signaling that the unemployment numbers are already baked in and investors are focused on the financial support coming from the Federal Reserve.

This puts action behind Chairman Powell’s commitment that the Federal Reserve is prepared to do whatever it takes to support the economy in this economic/health crisis.

Some reported that after the Federal Reserve dropped short term interest rates to 0 and reinstituted the Quantitative Easing program, it had no arrows left in its quiver. This program shows that the central bank and the US Treasury are being creative to support the economy. The goal according to Chairman Powell is “to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

  • Main Street Lending Program – announced in March, but now it is being expanded from the original $75 Billion from the US Treasury to an additional $600 Billion from the Federal Reserve. These are loans to companies that hire up to 10,000 workers or have revenue of less than $2.5 billion. The loans will go through eligible banks, but banks will only retain 5% of the loan. The remaining 95% will be sold to a “special purpose vehicle” set up by the Treasury. This program is still being finalized and the Federal Reserve invites feedback from the public through April 16th.
  •  Paycheck Protection Program – the Small Business Administration loans announced in the CARES Act. The Fed will take these bank loans as collateral and provide financing to help banks who participate.
  • Municipal Liquidity Facility – this is the first attempt to support state and local governments. It is a program in which the Fed will purchase securities from states and larger counties and cities. The guidelines include counties of up to 2 million people and cities with 1 million or more people. There will be $35 Billion of credit protection for municipal securities. There will also be up to $500 Billion in loans to states and local governments to help them with cash flow challenges during this unusual time.
  • Corporate Bonds – the Fed is expanding its credit protection of certain corporate credit as well.

Unemployment numbers increase as more businesses furlough workers. The combined efforts of the Federal Reserve and the US Treasury are part of the “all hands on deck” and “all of government approach” to support Americans and make sure our economy will get back on track quickly once the virus is controlled.

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our view at the time of this writing and is subject to change. This is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us. We are here to help and welcome your call.

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