Fed signals unlimited QE and aid for firms, cities

By BLOOMBERG

WASHINGTON • The US Federal Reserve (Fed) yesterday announced a massive second wave of initiatives to support a shuttered US economy, including buying an unlimited amount of bonds to keep borrowing costs low and setting up programmes to ensure credit flows to corporations and state and local governments.

The Fed will buy Treasuries and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy”, and will also buy agency commercial mortgage-backed securities (MBS), according to a statement. The Fed said a week ago it would buy at least US$500 billion (RM2.22 trillion) of Treasuries and US$200 billion of agency MBS.

The rate on 10-year Treasuries plunged following the announcement, flattening the yield curve, while the dollar dropped and US stock futures pared their earlier losses.

Under the new programmes, the Fed will take on a slew of efforts, many aimed at directly aiding employers and households, as well as cities and states.

“Hopefully you’ll come out of this with some fiscal stimulus as well, and you’ll be set with good growth opportunities in the long run,” said George Rusnak of Wells Fargo & Co.

The Fed will support “the flow of credit to employers, consumers and businesses by establishing new programmes that, taken together, will provide up to US$300 billion in new financing”. It will be backed by US$30 billion from the Treasury’s Exchange Stabilisation Fund.

“Getting to the corporate bond market was critical. A lot of people needed to be clear the quantitative easing (QE) was unconstrained,” said Julia Coronado, president of MacroPolicy Perspectives.

The Fed also said it “expects to announce soon the establishment of a Main Street Business Lending Programme to support lending to eligible small-and medium-sized businesses, complementing efforts” by the Small Business Administration. — Bloomberg