July 6, 2020

The Fed will buy assets unlimitedly to face the impact of the coronavirus



This week it will acquire assets worth $ 625 billion

The Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed) has decided to amend its asset purchase plan in light of the economic risks posed by the coronavirus, so will buy unlimited assets for as long as necessary, as announced this Monday. At the last monetary policy meeting, which took place on an Sunday, the Fed lowered rates to zero and approved buying $ 700 billion (€ 651.508 million). The monetary authority has stressed that She is “committed” to using all the tools at her disposal to support homes, businesses and the American economy in general, so “she will continue to buy Treasury securities and mortgage securitizations in the necessary amounts.”

The goal of this boundless quantitative expansion (QE) is “Support” the functioning of the market and the “effective” transmission of monetary policy towards more “loose” financial conditions. In addition, the FOMC has stated that it will continue to carry out “large-scale” repurchase operations (repo) on a daily basis to guarantee liquidity, and that it will closely monitor market conditions. “Despite great uncertainty, it has become clear that our economy will face severe disruptions. Aggressive efforts must be made in the public and private sectors to limit job and income losses and to promote a rapid recovery once the disruptions are over, “the Fed explained.

Strategy value

The Federal Reserve Bank of New York, responsible for implementing the Fed’s monetary policy, has explained that between today and Friday it will buy $ 75 billion (69.5 billion euros) a day in Treasury bonds, as well as 50,000 millions of dollars in mortgage securitizations. In total, this week the Fed will buy assets worth 625 billion dollars (579,581 million euros), according to Ep.

In addition, the Fed has launched two other facilities to support credit to large companies: a program for the primary market, aimed at increasing the issuance of bonds and securitizations, and a program for the secondary market, with the aim of providing liquidity to the bonds already issued. The monetary authority has also launched a third program to support the issuance of securitizations backed by student loans, car loans, credit card loans and loans guaranteed by the United States Administration for Small Businesses (SBA). . In this way, the Fed is committed to granting credits with favorable conditions to the holders of these recently issued securitizations. In total, the Fed expects these measures to support credit to households and businesses by up to $ 300 billion (€ 278.2 billion).

On the other hand, the monetary authority has announced that it will “announce soon” the launch of a program of loans to small and medium-sized companies that will complement the measures already approved.

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