The Federal Reserve has offered more than $3 trillion in loans and asset purchases in recent weeks to stop the U.S. financial system from seizing up, but it has not yet directly helped large swaths of the real economy by ldelevingne hpschneider
FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis
On Friday, the Treasury got about $450 billion more from Congress as part of a $2.2 trillion U.S. stimulus package, greatly increasing its ability to support the economy. Before the bill passed, the stabilization fund had about $93 billion in assets as of the end of February. Scott Minerd, chief investment officer of Guggenheim Partners and member of an investor committee that advises the New York Federal Reserve on financial markets, told Reuters he believes the government needs to give the Treasury about $2 trillion to help prop up the economy.
In a research note last week, Bank of America analysts said the aid package passed last week was the “bare minimum.” They estimated the government will need a total of $3 trillion in fiscal stimulus and more if the recession deepens.The Fed has so far kept its pledge to lend to companies with investment-grade ratings, and to buy other high-quality assets such as Treasury securities.
In its facility to make loans to investment-grade companies through a special purpose vehicle, the Fed said, “The scope of eligible issuers may be expanded in the future.” “I suspect that any move in that direction would need to come with a massive fiscal backstop to protect the integrity of the Fed’s balance sheets,” El-Erian said.The Fed’s initial steps into the corporate bond market, limiting its scope to investment grade issuers, essentially avoids rewarding or bailing out badly run companies.
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