Since this crisis began we have talked about historic monetary and fiscal stimulus and this would represent that, just like the Treasury’s comments on Fiscal Stimulus last Friday. Thus far the markets do not care and the S&P 500 Futures are limit down in pre-market trading. The bottom line is both the Fed Chair and Treasury Secretary have made it clear they would do everything they can to help offset the economic damage as the global economy grinds to a halt due to Covid-19 health crisis. The below bullets highlight the Fed’s actions this evening:
- The FOMC cut the fed funds rate to 0 to 0.25% effective today. The committee will keep rates at the effective lower bound until the economy has weathered recent events and is on track toward maximum employment and 2% inflation.
- To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion.
- The Open Market Desk was instructed to do unlimited repo lending “in amounts only limited to the value of Treasury securities held outright” at a rate of 0.00% with a per-counterparty limit of $30bn a day.
- All reinvestment of mortgage and agencies prepaying in the Fed portfolio will be into mortgages.
- The primary credit rate (discount rate) was cut to 0.25%.
- The IOER is now 0.10%. Banks are no longer required to meet a required reserve ratio.
- The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.
Please see the full release here:
Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. All data points are sourced from Bloomberg as of 3/15/20 at 7pm unless noted otherwise.
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