The Federal Open Market Committee (FOMC) , in its monetary policy meeting held in the month of July had a discussion of implementing a number of monetary policy tools to reduce the concerns regarding the economic outlook for the United States. Previously the FOMC had taken a set of primitive measures, a numerous emergency measures per say, but the committee members were wanting to know more about exploring more tool and enable further easing on the entire process. The banks all around the world including the FED adapted a number of growing tools to achieve specific targets for a few economic metrics, in the decade following the financial crisis of 2008-09. Issues such as inflation, unemployment and economic growth were tackled with the use of these new tools. Policy makers around the world have set out to save their economies with variety of approaches. The questions are arising as to, if the monetary policy tools are being used while making policies or not, having the tools at their disposal are the existing tools enough to contain the economic fallout but not actually preventing the fast possible recovery.
For a start, by March 15, it lowered its rate from 1.5 to 0-0.25 percent and also relaunched quantitative easing, stating that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities. After The Central banks slashing their benchmark interest rates to their respective lower bounds, the FED also introduced a certain of measures.
- Lowering the rate at which it lends to banks via its discount window from 1.75 to 0.25 percent, thus aiding the liquidity and stability of the banking system;
- Re-launching its Term Asset-Backed Securities Loan Facility (TALF), which proved successful during the financial crisis. According to the Fed, this facility is “intended to help meet the credit needs of consumers and small businesses by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally.” The TALF has pledged up to $100 billion in new credit;
- Expanding lending to securities firms via its Primary Dealer Credit Facility (PDCF), whereby the Fed provides low-interest loans to select financial institutions in return for collateral such as equities and debt securities, with the aim of supporting liquidity in credit markets;
- Relaxing banking regulations pertaining to capital and liquidity buffers as a way to encourage lending by banks;
- Introducing the Primary Market Corporate Credit Facility (PMCCF) and the new Secondary Market Corporate Credit Facility (SMCCF) to enable the Fed to lend directly to corporations. The PMCCF allows firms to issue new bonds and purchase loans from the Fed as well as delay interest and principal payments for at least six months; while the SMCFF allows the Fed to purchase existing corporate bonds and corporate-bond-focused ETFs (exchange-traded funds);
- Initiating the Main Street Lending Program (Program) to provide support for small and medium-sized businesses as well as non-profit organizations. Three lending facilities—the Main Street New Loan Facility (MSNLF), Main Street Expanded Loan Facility (MSELF) and Main Street Priority Loan Facility (MSPLF)—enable the Fed to fund up to $600 billion in five-year loans;
- Lending to state and local governments through the Municipal Liquidity Facility (MLF);
- Supporting financial market liquidity through:
- The Money Market Mutual Fund Liquidity Facility (MMLF), which provides banks with loans that are collateralized from prime money-market funds;
- The Commercial Paper Funding Facility (CPFF) as a way for the Fed to fund corporations (the ones that issue commercial paper);
- Expanding its repo market operations to fund money markets;
- Boosting liquidity for municipal bonds by expanding the collateral eligibility of the MMLF and CPFF.
Given the unpredictable nature of this pandemic, therefore, it would seem wise not to rule out adopting more measures to inspire a resurgence in the US economy.
