WASHINGTON, D.C. – The Federal Reserve is unleashing its boldest effort yet to protect the U.S. economy from the coronavirus by helping companies and governments pay their bills and survive a devastating crisis.
With lending in Treasury and mortgage markets threatening to shut down, the Fed announced an aggressive set of programs Monday to try to smooth out those markets. To do so, it committed to buy as much government-backed debt as it deems necessary. And for the first time ever, the Fed said it plans to buy corporate debt, too.
Its intervention is intended to ensure that households, companies, banks and governments can get the loans they need at a time when their own revenue is fast drying up as the economy stalls.
The Fed's all-out effort to support the flow of credit through an economy ravaged by the viral outbreak has now gone beyond even the extraordinary drive it made to rescue the economy from the 2008 financial crisis.
"The coronavirus pandemic is causing tremendous hardship across the United States and around the world," the Fed said in a statement. “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 announcement initially lifted stocks in early trading. But rancorous talks in Congress over a $2 trillion rescue package — and uncertainty over when any agreement might be reached — depressed shares about 2.5% in volatile midday trading. The yield on the 10-year Treasury bond fell, a sign that more investors are willing to purchase the securities.
With its new programs, the Fed, led by Chair Jerome Powell, is trying to both stabilize the economy and allay panic in financial markets. As the need for cash has escalated among many corporations and city and state governments, large businesses have been drawing as much as they can on their existing borrowing relationships with banks.
The intensifying need for money means that banks and other investors are seeking to rapidly unload Treasuries, short-term corporate debt, municipal bonds and other securities. The Fed's move to intervene as a buyer of last resort is intended to supply that needed cash.