Federal Reserve provides additional support

The Federal Reserve on Thursday, 9 April 2020, took additional actions to provide up to $2.3 trillion in loans to support the economy. This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic. Highlights:

  • The Paycheck Protection Program Liquidity Facility (PPPLF) will give credit to eligible financial institutions that originate loans under the Small Business Administration’s Paycheck Protection Program (PPP) for small businesses to keep their workers on the payroll. The loans will be collateral at face value.
  • The Main Street Lending Program will provide credit flows to small and mid-sized businesses with purchase of up to $600 billion in loans, with funding of $75 billion in equity under Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
  • Increase flow of credit to households and businesses through capital markets, by expanding size and scope of Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection.
  • Municipal Liquidity Facility will lend up to $500 billion to states and municipalities with credit protection of $35 billion under the CARES Act.

The details are here. The rationale for the FED action comes from its mandate to promote maximum employment and stable prices, along with financial stability. Question for other countries/central banks: Will it be wise to add maximum/full employment as an explicit objective?

© G Sreekumar 2021

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