As a result of the growing coronavirus outbreak and its effect on the economy, the Federal Reserve has repeatedly jumped in to try to keep the U.S. economy from suffering long-term damages from this pandemic. On March 3, they announced an emergency interest rate cut and have rolled out new initiatives weekly, including slashing rates to zero and relaunching large-scale asset purchases. The Federal Reserve typically deals with banks and consumers when trying to stimulate the economy but this time, the strategy has changed:
Last week, the Fed unveiled a $2.3 trillion lending program.
1. It created a Municipal Liquidity Facility with up to $500 billion in loans and $35 billion in credit protection to help state and local governments managed cash flow stress caused by the pandemic. The Fed will buy short-term debt from states and Washington D.C., counties with at least 2 million people, and cities with a population north of 1 million.
2. The Fed plans to supply financing to banks taking part in the Small Business Administration’s Paycheck Protection Program (PPP). As of yesterday, the program is now fully operational and is ready to lend to banks participating in the Federal government’s small business rescue efforts.
3. Additionally, it aims at boosting its Main Street Lending Program for small businesses with an additional $600 billion in loans as well as $75 billion in funding from the Treasury Department via the Coronavirus Aid, Relief, and Economic Security Act (CARES) fiscal stimulus.
4. The Fed has also expanded three other loan facilities it had previously set up for consumers and businesses with $850 billion more in credit backed by the $85 billion in credit protection from the Treasury Department.
Some see these initiatives as a “wartime commitment” to fighting this virus. Especially since many of the strategies have only been used during the 2007-2009 Great Recession and 1929-1939 Great Depression. Although, the severity of the situation isn’t at the level of the Great Depression yet, the economy could use the help. 22 million Americans filed for unemployment since the beginning of the outbreak representing almost 11% of the U.S. workforce. And the numbers are projected to grow further.
Will these initiatives be enough to pull Americans and the economy through this unprecedented time? The next 12 months will be an interesting time for healthcare, government, the economy, and the well being of Americans.