JAKARTA (TheInsiderStories) – Chairman of Federal Reserve (Fed) Jerome Powell rated, the outlook of the United States (US) is “extraordinarily uncertain” and will depend on containing the COVID-19 also the government efforts to support the recovery. He asserted, as the economy reopens, employment moved higher and consumer spending rebounded strongly in May.
“We have entered an important new phase and have done so sooner than expected. While this bounce back in economic activity is welcome, it also presents new challenges —notably, the need to keep the virus in check,” he said in a statement released on Monday (06/29).
While recent economic data offer some positive signs, the rise in joblessness has been especially severe for lower-wage workers, he adds. This reversal of economic fortune has caused a level of pain that is hard to capture in words as lives are upended amid great uncertainty about the future. The Fed’ response to these extraordinary developments has been guided by promoted maximum employment and stable prices for the American people as well as the central bank’ role in fostering the stability of the financial system.
“We are strongly committed to using these programs, as well as our other tools, to do what we can to provide stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy,” said Powell.
He continued, in March, the Fed lowered our policy interest rate to near zero, and the governors expect to maintain interest rates at this level until they are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals.
In addition to these steps, the Bank took forceful measures in four areas such as open market operations to restore market functioning, improve liquidity conditions in short-term funding markets, to facilitate more directly the flow of credit to households coordination with the treasury department, businesses, state and local governments also measures to encourage banks to use their substantial capital and liquidity buffers built up over the past decade to support the economy during this difficult time.
In mid-March, offshore US Dollar funding markets also came under stress. In response, the Fed and several other central banks announced the expansion and enhancement of dollar liquidity swap lines. In addition, the central bank introduced a new temporary treasury repurchase agreement facility for foreign monetary authorities.
“These actions helped stabilize global US dollar funding markets, and they continue to support the smooth functioning of US treasury and other financial markets as well as US economic conditions,” the governor stated.
On March 23, the Board announced that it would support consumer and business lending by establishing the Term Asset-Backed Securities Loan Facility (TALF). The TALF is authorized to extend up to $100 billion in loans and is backed by $10 billion in CARES Act equity.
This facility lends against top-rated securities backed by auto loans, credit card loans, other consumer and business loans, commercial mortgage-backed securities, and other assets. The facility made its first loans on June 25, and, to date, has extended $252 million in loans to eligible borrowers.
To support the credit needs of large employers, the Fed also established the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF). These facilities primarily purchase bonds issued by US companies that were investment grade on March 22. The two facilities have a combined purchase capacity of up to $750 billion and are backed by $75 billion in CARES Act equity.
Final terms and operational details on the PMCCF were announced on June 29, and it stands ready to purchase newly issued corporate bonds and syndicated loans, serving as a backstop for businesses seeking to refinance their existing credit or obtain new funding.
Then, the Main Street Lending Program, which is designed to provide loans to small and medium-sized businesses that were in good financial standing before the pandemic. The facility is backed by $75 billion in CARES Act equity and can purchase up to $600 billion in loan participations.
In addition, to help state and local governments better manage cash flow pressures in order to continue to serve households and businesses in their communities, the Fed together with the treasury Department, established the Municipal Liquidity Facility (MLF). The MLF is backed by $35 billion of CARES Act equity and has the capacity to purchase up to $500 billion of short-term debt directly from U.S. states, counties, cities, and certain multi-state entities.
The facility became operational on May 26, and, to date, the MLF has purchased $1.2 billion worth of short-term municipal debt. With the MLF and other facilities in place as a backstop to the private market, many parts of the municipal bond market have significantly recovered from the unprecedented stress experienced earlier this year. Municipal bond yields have declined considerably, issuance has been robust over the past two months, and market conditions have improved.
“The final area where we took steps was in bank regulation. The Board made several adjustments, many temporary, to encourage banks to use their positions of strength to support households and businesses. We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible,” concluded by Powell.
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