Business

Fed goes all in with new, unlimited bond-buying plan

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WASHINGTON • The US Federal Reserve said it would buy as much government-backed debt as needed to soothe fraught markets and it unrolled a series of programmes meant to shore up both large and small businesses, unveiling a whatever-it-takes effort to cushion the brutal economic blow of the coronavirus.

"Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate," the central bank said yesterday morning, adding that "the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses".

The United States central bank, which restarted its massive bond-buying programme eight days ago, said it would expand well beyond the US$700 billion (S$1.02 trillion) in Treasuries and US$200 billion in mortgage-backed securities the Fed initially said it would buy.

Instead, officials will buy bonds "in the amounts needed to support smooth market functioning" – including buying government-backed debt tied to commercial real estate.

The central bank also announced that it will wade into corporate bond purchases for the first time and committed to a new small business lending programme, going far beyond its playbook from the 2008 global financial crisis.

The scope of the package is a clear indication that the Fed is throwing its full weight at confronting the economic fallout from the coronavirus, which poses a severe threat as factories shut down, people lose jobs and the economy grinds to a halt. It comes as lawmakers in Congress continue to struggle to find a fiscal response.

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The Fed's plan to bolster the corporate bond market, which has been under pressure as companies shut down in the face of the virus, is without precedent. The central bank has never before bought longer-dated corporate debt.

The two new programmes, both of which are established using the Fed's emergency lending powers, will help companies fund themselves and ease the trading of corporate debt in the secondary market.

Federal Reserve Bank of St Louis president James Bullard predicted the US unemployment rate may hit 30 per cent in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50 per cent drop in gross domestic product (GDP).

Mr Bullard called for a powerful fiscal response to replace the US$2.5 trillion in lost income for that quarter to ensure a strong eventual US recovery, adding that the Fed would be poised to do more to ensure markets function during a period of high volatility.

"Everything is on the table" for the Fed when it comes to additional lending programmes, Mr Bullard said in a telephonRead More – Source