Fed announces unlimited QE to support markets battered by Covid-19

Washington, Mar 23 (efe-epa).- The US Federal Reserve said Monday that it will purchase Treasury bills and mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions” amid the strains caused by the coronavirus pandemic.

Known as quantitative easing (QE), asset purchases by central banks were a major part of the response to the global financial meltdown in 2008.

“The Federal Reserve is committed to use its full range of tools to support the US economy in this challenging time and thereby promote its maximum employment and price stability goals,” the Fed Board of Governors said in a statement.

The Fed had previously said it would spend up to $700 billion to purchase financial assets, including $500 billion on Treasurys and $200 billion on mortgage-backed securities.

Besides scrapping the limit on QE purchases, the Fed said it was creating new programs that will make available as much as $300 billion to maintain the flow of credit to municipalities, employers, workers and businesses.

The Fed’s latest steps to boost confidence were announced prior to the start of trading on the New York Stock Exchange, but investors did not seem overly impressed, as the benchmark Dow 30 index was down more than 500 points approaching the mid-point of Monday’s session.

“The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus,” the Federal Reserve said as unofficial tallies showed the number of cases in the US surpassing 35,000 and the death toll climbing to 471.

“While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” the Fed Board of Governors said.

The Fed also signaled its intention to go beyond financial-market measures by instituting a Main Street Business Lending Program meant to complement existing efforts of the US Small Business Administration.

While the Federal Reserve took fresh action to address the economic fallout from the Covid-19 pandemic, negotiations continued between Democratic and Republic lawmakers and the Trump administration on legislation to mobilize as much as $2 trillion in federal funds to help affected industries and their employees. EFE


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