The Federal Reserve stepped in Thursday morning with a collection of programs to help bolster the U.S. economy with more than $2 trillion in loans.
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The move comes more than a week after Congress approved a massive stimulus bill to assist businesses and workers laid off due to the pandemic that has shocked the economy and already led to more than 16 million people filing for unemployment benefits during the past three weeks.
“We are deploying these lending powers to an unprecedented extent, enabled in large part by the financial backing from Congress and the Treasury. We will continue to use these powers forcefully, proactively and aggressively until we are confident that we are solidly on the road to recovery,” Federal Reserve Chairman Jerome Powell said during a Brookings Institute webinar on Thursday.
The details of the Fed program, called the Main Street Lending Program, include four-year loans to small and midsized companies with up to 10,000 workers and revenues of less than $2.5B in an effort to maintain their payroll and inject liquidity into those businesses.
The Fed program impacts a wider range of companies than what the CARES Act aimed for, which were mainly companies of 500 or fewer employees, hotels and retailers.
The central bank also allows its $100B Term Asset-Backed Securities Loan Program to include Triple-A rated commercial mortgage-backed securities and new collateralized loan obligations. This program will support new debt issuance from firms that have been downgraded since March, the Wall Street Journal reported. A portion of the program will be backstopped by the Treasury against potential losses, officials said.
An hour after revealing the new program, the Fed also announced that loans made by banks to support the Small Business Administration's Paycheck Protection Program, established by the CARES Act, would not count against banks' overall loan portfolios.
“To me, that's huge,” Federal Reserve Bank of Atlanta Associate Policy Adviser and Economist Carl Hudson said hours after the Fed made the decision during a Bisnow webinar. “If banks are hesitant to ramp up their lending because they think they're going to have a bigger loan portfolio and that's going to lower their capital ratios, that's basically not going to happen.”
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The Fed program also is expected to pump $500B in loans for states and municipalities, helping to bolster government finances through the economic crisis, by purchasing short-term notes directly from states, and from counties with populations of at least 2 million residents and cities with populations of at least one million residents.
"Federal Reserve will continue to closely monitor conditions in the primary and secondary markets for municipal securities and will evaluate whether additional measures are needed to support the flow of credit and liquidity to state and local governments," Fed officials said in a release.
Some have suggested the Fed moves along with the stimulus provided by the CARES Act could influence inflation into a strong move upward. But Powell and Hudson dismissed those concerns, especially given that the current capital flooding into the system is targeted at basic needs such as food and rent.
“Globally, the challenge has been inflation below target. Honestly, it's not a first-order concern for us today that too-high inflation will be coming in the near term. Far from it,” Powell said. “[Workers and small businesses] didn't cause this. Their business isn't closed because of anything they did wrong. They didn't lose their jobs because of anything they did wrong. This is what the great fiscal power of the United States is for, to protect these people as best we can from the hardships they're facing."
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