Sudden Heavy! The Federal Reserve Announces Open Quantitative Easing Policy And Six Measures To Save The Economy.

On the morning of March 23rd local time, the Federal Reserve announced that because the new crown virus pandemic caused great difficulties to all sectors of the society, the Federal Reserve announced the extensive new meaures to support the economy, including open asset purchases, and expand the liquidity of the money market.

The Fed said it would buy $75 billion of treasury bonds and $50 billion of institutional home mortgage-backed securities this week, and the daily and regular repo rates will reset to 0%. To ensure market operation and monetary policy transmission, US debt and MBS will be bought on demand.

At the same time, the Federal Reserve will start providing unprecedented credit support for families, small businesses and major employers.

The Federal Reserve said in its statement that these measures were taken because "our economy will face serious chaos, which has become obvious".

The Fed said that in this challenging era, they will be committed to using various tools to support American workers, businesses and the US economy. The "new crown" virus pandemic is causing great difficulties to the United States and the rest of the world. The primary task of our country is to take care of those infected and restrict the further spread of the virus. Despite the huge uncertainties, our economy is clearly facing serious chaos. We must take active measures in the public and private sectors to limit losses to employment and income, and to promote rapid economic recovery after a brief interruption. "

The statement on Monday is the most radical market intervention by the fed so far. Earlier, the Fed announced that it would buy US $500 billion worth of treasury bonds and US $200 billion MBS. This new measure represents an unlimited commitment to quantitative easing.

Bleakley Peter Boockvar, chief investment officer of the consulting group, said in a report, "we are now in a state of unlimited easing. "

MUFG Union Bank chief financial economist Chris Rupkey said, "the Fed's policy is shifting to a higher stall, trying to help support the current seemingly free fall economy." "The central bank is changing its role. It is no longer the last lender, but the last buyer. Do not ask how much they will buy, this is truly unlimited quantitative easing.

The Fed also announced that it would expand its commercial paper financing arrangements. The plan will now include "high quality, tax free commercial bills" and prices will also be lowered. The Fed said the plans were supported by the Treasury.

The Fed said its role is to promote employment maximization and price stability, and to assume responsibility for promoting stability in the financial system. To support these goals, the Federal Reserve is using all its functions to provide strong support for credit flows of American households and businesses. These measures include many aspects.

First, support the operation of key markets. The Federal Open Market Committee (FOMC) will buy treasury bonds and institutional Mortgage Backed Securities (MBS) to support the smooth operation of the market and the effective transmission of monetary policy to a wider financial environment and economy. FOMC has announced that it will buy at least $500 billion of US Treasury bonds and at least 200 billion dollars in mortgage backed securities. In addition, FOMC will incorporate the purchase of commercial mortgage backed securities into its institutions' mortgage backed securities.

Second, support the flow of credit to employers, consumers and enterprises through the establishment of new projects. Together, these new projects will provide up to $300 billion in new financing. The Treasury will use the foreign exchange stabilization and adjustment Fund (ESF) to provide us $30 billion in capital stock to these institutions.

Third, two credit instruments are set up to support loans to large employers: the first market company credit facility (PMCCF), to issue new bonds and loans; and second market company credit facility (SMCCF) to provide liquidity for high-quality corporate bonds.

The Fed points out that PMCCF will allow companies to obtain credit in order to better maintain business operations and capabilities during the new crown epidemic. The fund is open to investment grade companies and will provide transitional financing for a period of four years. The borrower may choose to postpone the payment of interest and principal in the first six months of the loan (depending on the decision of the Federal Reserve), so that additional cash can be used to pay the wages of the employees and suppliers. SMCCF will buy investment grade American companies in the two tier market, as well as EFT, which is widely available in the US, and is designed to provide broad access to the investment grade corporate bond market in the US.

It is understood that the Federal Reserve will finance a special purpose vehicle (SPV), which will borrow from PMCCF and provide it to various companies. The Treasury will use ESF to invest in SPV.

Fourth, third tools, TALF, are established to support credit flows to consumers and businesses. TALF will allow the issuance of student backed loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA) and some other assets backed ABS.

According to TALF, the Federal Reserve will extend loans to holders of 3A class ABS without recourse. These ABS are supported by recently released loans from consumers and small businesses. The Fed will lend the equivalent of ABS market value minus the write down amount, and will always be secured by ABS.

Fifth, by expanding the money market mutual fund liquidity facility (MMLF), such as municipal variable rate spot notes (VRDNs) and bank deposit certificates, they should be included in the scope of securities so that credit flows to the municipal authorities.

Sixth, through the expansion of commercial paper financing mechanism (CPFF), high-quality and tax-free commercial bills will be incorporated into eligible securities to facilitate the flow of credit to the municipal authorities. The price of these measures will also be reduced.

In addition to the above measures, the Federal Reserve will soon announce the establishment of a Main Street Business Lending Program to provide loans to eligible SMEs to complement the efforts of the Small Business Administration (SBA).

The Fed stressed that TALF, PMCCF and SMCCF were established by the Federal Reserve under the authorization of the Federal Reserve Act thirteenth (3) and approved by the Minister of finance. These actions reinforced the Federal Reserve's measures in the past week to support credit flows to families and businesses. In addition, the Federal Reserve will continue to use various tools to support credit flows to families and enterprises, thereby promoting the goal of achieving maximum employment and price stability.