The US monetary authority, the Federal Reserve, announced yesterday a massive $2.3 trillion economic stimulus that aims to stabilize the economy by providing financial assistance for small businesses, municipalities, and corporations.
In an unprecedented move to contain the economic fallout from the recent coronavirus crisis, the Fed will provide $500 billion in loans to assist struggling municipalities and states, $600 billion for small-business loan purchases, $850 billion for the purchase of corporate bonds and asset-backed securities, and around $400 billion more destined to provide term-loans to support the Paycheck Protection Program (PPP).
The Federal Reserve Chairman, Jerome Powell (pictured), announced these measures during a 90-minute news conference held yesterday where he outlined the broad details of the program.
In a demonstration of the Fed’s support during the health emergency, Powell stated: “We will continue to use these powers forcefully, pro-actively, and aggressively until we are confident that we are solidly on the road to recovery”.
The markets appear to be reacting positively to the Fed’s agenda, as the S&P opened today’s session with a 1% gain in what has been so far the best week for Wall Street since the market crashed on February 20. So far, the S&P accumulates a 5.1% gain this week and it is currently trading at nearly 2,780.
This is not the first time the Fed has stepped up to support the US financial markets during this turmoil, as the central bank has already boosted its balance sheet by nearly $2 billion by purchasing distressed assets.
Meanwhile, Wall Street is responding positively to the fact that the Fed is willing to purchase nearly $850 billion in non-investment grade bonds that fell from their investment-grade category before March 22, along with investment-grade ETFs, in a move that has surprised investors as this is the first time the Fed has provided support to poorly-rated corporate credit instruments, also known as junk bonds.
In this regard, Barclays’ Chief US Economist, Michael Gapen, analyzed these recent measures as follows: “The Fed has now done virtually everything we think it should be doing and we think it can do”, emphasizing the fact that the central bank is using all its resources to cushion the impact of the economic fallout resulting from the health emergency.