Fed rolls out $2.3 tn to backstop ‘Main Street,’ local governments
WASHINGTON: The US Federal Reserve announced a broad, $2.3 trillion effort to bolster local governments and small and mid-sized businesses, the latest in an expanding suite of programmes meant to keep the US economy intact as the country battles the coronavirus pandemic.
Announcing details of a promised effort to put its financial weight behind “Main Street,” the Fed said it would work through banks to offer four-year loans to companies of up to 10,000 employees, and begin to directly lend to state governments and more populous counties and cities to help them respond to the crisis.
It may prove to be the Fed’s most groundbreaking step yet in the battle against the economic fallout from a health crisis that has seen a recordshattering 16.8 million people file for unemployment benefits in just three weeks and seen untold numbers of businesses forced to shutter under social distancing rules.
As the pandemic advanced, the Fed set aside inhibitions about inflation, political blowback and other risks that arguably slowed its response to the 2007 to 2009 crisis, and in a matter of weeks has sequentially extended safety nets to different parts of the economy. On Thursday it added help for some key remaining constituencies - small firms, mid-sized industries, local governments, and even corporations which might find their credit standing downgraded because of a fast-evolving economic downturn.
Fed Chair Jerome Powell said the demands of the crisis have led the central bank to broaden its role beyond the usual focus on keeping markets “liquid” and functional, to helping the United States get the economic and financial space it needs to fix a dire health emergency.
Any reopening of the economy should not be rushed said Powell, warning of any “false start,” and the focus of the Fed and elected officials should be on keeping people financially “whole” until the recovery begins.
“People are undertaking sacrifices for the common good,” Powell said in webcast remarks hosted by the Brookings Institution. “We should make them whole. They did not cause this. This is what the great fiscal power of the United States is for, to protect these people from the hardships they are facing.”
Though many of the programmes are due to lapse in September, Powell said the Fed’s commitment would only be limited by the need to get the pandemic controlled and try to build a robust recovery - once health authorities have declared it safe to reopen for business, however long that takes.
“We are deploying these lending powers to an unprecedented extent… We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery,” Powell said.
The Fed’s latest salvo helped lift US stocks while other global equity benchmarks also gained. HELPING LOCAL GOVERNMENTS The programme offers to pump up to $500 billion into local governments, which are both on the front lines of the health battle yet also may see tax revenues collapse as unemployment rises and businesses are shut under social distancing rules aimed at curbing the spread of the virus.