Fed unveils $2.3trn plan to help small businesses

WASHINGTON: The US Federal Reserve yesterday announced a broad, $2.3 trillion effort to bolster local governments and small and mid-sized businesses.

This is 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 record-shattering 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.

Yesterday 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 US 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.

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.

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.

The Fed in this case is directly buying municipal bonds of up to two year’s duration – a step called for by some Democrats in the US House of Representatives as a needed prop for local governments. The Fed’s assistance will be available to the states, the District of Columbia, counties with more than 2m residents, and cities of more than 1m.

The new “Main Street” facility will use banks to funnel up to $600bn in loans of at least $1m to firms that have up to 10,000 employees or less than $2.5bn in revenue, an effort to expand the safety net for businesses begun under the CARES act recently passed by Congress.

 

Source: http://www.gdnonline.com/Details/799444

 

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