March 24, 2020

Fed announces new stabilization efforts


Yesterday, the Federal Reserve announced a new stabilization package and committed to using the full range of its authorities aimed toward supporting the economy during the coronavirus pandemic.

Included in these actions is a plan for the Federal Open Market Committee (FOMC) to purchase the Treasury Department’s securities and agency mortgage-backed securities (MBS) in the amounts needed to support smooth market functioning.

The Fed will buy Treasury securities and agency MBS “in the amounts needed to support smooth market functioning.” This effort will begin this week at $625 billion and will scale up if needed. Previously, the Fed announced that the FOMC would buy at least $500 billion Treasury securities and $200 billion agency MBS in an effort to stabilize and support the economy. Long-term Treasury yields rose last week, however, and mortgage rates remain elevated relative to those yields.

Also included in the package is the purchase of agency commercial mortgage-backed securities in an attempt to support the flow of credit to households and businesses.

Additionally, the Fed will establish three facilities to support the flow of credit to consumers:

  • the Term Asset-Backed Securities Loan Facility (TALF), under which the Fed will lend on a non-recourse basis to holders of certain AAA-rated asset-backed securities backed by newly and recently originated consumer and small business loans;
  • the Primary Market Corporate Credit Facility for new bond and loan issuance; and
  • the Secondary Market Corporate Credit Facility to provide liquidity for outstanding corporate bonds.

In addition, the Fed announced it will soon unveil a Main Street Business Lending Facility aimed at supporting small businesses.

NAFCU Vice President of Research and Chief Economist Curt Long discussed the Fed’s efforts during a NAFCU member-only webinar last week. The webinar explained the economic toll the coronavirus is currently taking on the U.S. and world, and is available online for members to access on-demand. Long also has an economic brief outlining the potential impact of the coronavirus on the credit union industry and U.S.