In a move that, ça va sans dire, was announced outside of an official Federal Reserve meeting, the American central bank announced that, to counter the blockade of the economy linked to the advance of the Coronavirus, purchases of Treasury and mortgage-backed securities have become unlimited.
Federal Reserve: unlimited QE begins
Coronavirus, reports the Federal Reserve note, “is causing enormous difficulties in the United States and in the world”, it is now clear “that our economy will face serious upheavals “.
For the Fed, “it is necessary to make aggressive efforts, both in the public and private sectors, to limit job and income losses and promote a rapid recovery once the interruptions have subsided.”
Having said that, the Federal Reserve has made it known that “Will purchase government bonds and MBA (Mortgage-backed securities) for the necessary amounts to support the smooth functioning of the market and the effective transmission of monetary policy “.
The Federal Reserve launches unlimited QE, but not only
If the Fed had known a few days ago that it wanted to buy 500 billion Treasury bonds and 200 billion mortgage-backed securities, it has now announced that these purchases they have become essentially unlimited.
Over the current week, $ 375 billion in Treasury securities and $ 250 billion in mortgage securities will be purchased.
The Fed also said that it will launch new credit lines which will result in an equivalent value of approximately $ 300 billion in new funding. As regards the support of loans to large companies, two programs will be launched (Primary Market Corporate Credit Facility, PMCCF, and the Secondary Market Corporate Credit Facility, SMCCF) while for TALF (Term Asset-Backed Securities Lending) will be relaunched for consumers and smaller companies. Facility), already used in 2008.
Federal Reseve measures don’t stop there: financing measures are also provided for municipalities: the Money Market Mutual Fund Liquidity Facility (MMLF) and the Commercial Paper Funding Facility (CPFF).
Federal Reserve all-in: what the experts think
A little over a week after the previous announcement, commented Michael Hewson (Chief Market Analyst of CMC Markets UK), “the US central bank has again intervened decisively through the announcement of a Indefinite and unlimited QE “.
“As US politicians continue to procrastinate, the American central bank has decided to double and move all-in, not only helping Wall Street but also taking measures to help Main Street “ (the real economy that includes unlisted households and businesses, editor’s note).
The new measure announced by the Federal Reserve is not having major effects on the US indices: at the moment the Dow Jones is S & P500 mark a drop of about 1.4% while the Nasdaq share in substantial parity.
Purchases on 10-year bonds are lowering their yield to 0.752% while the Euro-dollar exchange rate rises to 1.078.
Federal Reserve: here’s what’s missing
At the appeal, noted Antonio Cesarano, Chief Global Strategist of Intermonte SIM, the inclusion of purchases of:
- corporate bond,
- Municipalities
- ETFs (for example with underlying equity indices).
“In order to do so, a change in the statute is needed, this too being discussed in Congress these days”.
“The word now passes to Congress, pending the launch of the Mnuchin plan and the change in the Fed statute, as well as the launch of a new form of TARP to define how to save companies in difficulty, along the lines of the 2008 TARP which at the time it was for the banks. “
