Published: Tue, March 24, 2020
Markets | By Otis Pena

The Fed throws everything at financial markets

The Fed throws everything at financial markets

The Federal Reserve launched an unprecedented effort on Monday to flood the U.S. economy with money amid the chaos caused by the coronavirus pandemic, as Congress debated a rescue plan for American workers and companies.

The Fed had initially announced that it will purchase approximately $200 billion in mortgage-backed securities and $500 billion US Treasuries.

It marks both a massive intervention into the U.S. economy by the central bank, and an quickly conceived move to adapt to the fact that the USA economy may need to shut its doors to keep people safe.

The central bank also unveiled a Primary Market Corporate Credit Facility (PMCCF) that would directly purchase eligible corporate bonds from investment grade issuers in addition to a Secondary Market Corporate Credit Facility (SMCCF) that would buy corporate bonds in the secondary market, which could include some eligible investment grade corporate bond exchange-traded funds.

"It's their bazooka moment", said Russell Price, chief economist at Ameriprise Financial Services in Troy, Michigan.

Concerns are growing that the USA economy may fall into a recession as shops and businesses are closing across the country and many people are urged to stay at home in an effort to slow the spread of the pneumonia-causing virus. But market uncertainty is still growing, as financial institutions are moving to hoard the U.S. currency.

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"It is totally stupid to lose a major industry because of a virus", Bullard said.

USA stock futures spiked following this announcement. US Treasury yields ticked higher.

"While great uncertainty remains, it has become clear that our economy will face severe disruptions", the Fed said in a statement, pledging to use all available tools to contain the damage. "The overall goal is to keep everyone, households and businesses, whole" with government support.

"The Fed is doing everything they can" to keep markets functioning smoothly after economic activity was disrupted, he said "We take this as a huge easing".

Republicans and Democrats failed over the weekend to reach a deal on a $1 trillion-plus coronavirus stimulus package.

The president also praised the strong U.S. dollar but acknowledged it makes "trade much tougher" - an unusual statement from an American president, who typically don't comment on the currency's value. This new announcement shows the Federal Reserve's open-ended commitment to Quantitative Easing (QE). "Now, the spotlight is on elected leaders to do their jobs as well".

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