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Fed takes drastic measures

Jerome Powell (Credit: Getty Images)

The Federal Reserve said it would start making loans to American corporations, relaunching a crisis-era tool to help calm short-term debt markets that have faced intensifying strains in recent days. The Fed trained its sights on dysfunction in the $1.1 trillion market for short-term corporate IOUs called commercial paper, WSJ noted.

  • Be Smart: The Fed said it would lend to commercial paper issuers at a rate of 2 percentage points above overnight lending rates for three months at a time. While the rates offered by the Fed might look high relative to traditional market prices, the fact that many issuers haven’t been able to borrow at any rate in recent days suggests the facility will be helpful.
  • Worth Noting: The Treasury will also provide $10 billion from an obscure pool of money it retains called the Exchange Stabilization Fund, which has around $94 billion in it, to cover credit losses for the Fed. 
  • Fiscal stimulus is now key: The Trump administration anticipates spending as much as $500 billion on direct cash payments to Americans across two $250 billion tranches, the first of which officials hope to deliver quickly. The package also includes roughly $50 billion in assistance for the airline industry, and up to $500 billion to boost small businesses and for other needs.

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