Moxie move: Fed rolls out huge $2.3 trillion economic backstop

Whatever you may think of the United States Federal Reserve, do not accuse its policymakers of being timid. 

On Thursday, the Fed unleashed another moxie-filled emergency move, announcing that it will make up to $2.3 trillion in loans available to shore up the US economy against the ravages of coronavirus.

“The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible,” Federal Reserve Chairman Jerome Powell said in a statement.

The $2.3 trillion in loans seeks to backstop a number of programmes extending a lifeline to people and businesses knocked sideways by stay-at-home orders that have grounded entire sectors of the economy to a halt, thrown millions out of work and sent consumers retreating behind closed doors.

The Fed’s $2.3 trillion liquidity bazooka aims to bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program (PPP) that provides loans to small businesses so that they can keep their workers on payroll. 

The loans are also designed to ensure credit keeps flowing to US households as well as to small and medium-sized businesses, and help state and local governments by establishing a Municipal Liquidity Facility that will offer up to $500bn in lending.

The Fed has been consistently at the vanguard of US policymakers responding boldly to the coronavirus crisis. The Fed’s moves have included slashing interest rates to near zero, pulling pages from the 2008 financial crisis playbook, and innovating new measures to unfreeze credit markets and get money into the hands of struggling businesses and individuals to keep the US economy on track.

Fed policymakers are essentially signalling that the US central bank has the backs of US businesses, state and local governments and American households and is prepared to do whatever it takes to get the country through this crisis. 

In prepared remarks during a webinar for the Brookings Institution following the Fed’s annoucement, Powell noted that “Many of the programmes that we’re undertaking to support the flow of credit rely on emergency lending powers that are available only in very unusual circumstances such as those we find ourselves in today and only with the consent of the secretary of the treasury.”

Powell also underscored the Fed’s committment to keep deploying extraordinary measures, saying  “we will continue to use these powers forcefully, proactively and aggressively until we are confident that we are solidly on the road to recovery.” 

The severity of the challenges facing the US economy were underscored on Thursday after the US Department of Labor reported that more than 16 million people filed for jobless benefits in the three weeks ending April 4.