Federal Reserve Announces Major Expansion of Market Supports
Fed Will Buy Unlimited Amounts of Treasurys and Mortgage Securities
The Federal Reserve announced a major expansion of lending programs Monday that are designed to unclog credit markets that seized up last week, expanding its facilities to include certain types of corporate and municipal debt.
The rate-setting Federal Open Market Committee said the purchases of Treasury and mortgage securities that it approved one week ago are essentially unlimited, and the central bank said it would buy $375 billion in Treasury securities and $250 billion in mortgage securities this week.
It also said that it would begin purchasing commercial mortgage-backed securities issued by government-supported entities, which primarily consist of debt on apartment buildings.
“While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the central bank said Monday morning. “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 Fed also said it would launch three new lending facilities, including the crisis-era Term Asset-Backed Securities Lending Facility, or TALF, which the central bank in 2008 used to support consumer and business credit markets. The Fed will lend money to investors to buy securities backed by credit-card loans and other consumer debt.
The central bank unveiled plans for two lending facilities to support corporate credit markets. One will lend to investment-grade companies and provide bridge financing of four years, while a second will buy corporate bonds issued by highly rated companies and U.S.-listed exchange-traded funds in the investment-grated corporate-bond market.
Those three facilities are designed to support $300 billion in new financing and the Treasury Department will cover $30 billion in losses.
It expanded two others that were unveiled last week to include additional classes of municipal debt, and said it would lower the pricing on one of those, the Commercial Paper Funding Facility.
The Fed also said it would soon roll out a Main Street Business Lending Program that will support lending to eligible small and midsize businesses.