The Federal Reserve, the Department of the Treasury, and Congress are firing financial bazookas left and right this morning. Here are the actions announced so far.
- The Federal Reserve will establish a Commercial Paper Funding Facility (CPFF) – “to support the flow of credit to households and businesses.”
- Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies. By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies, said the central bank in a statement.
- The White House announced an $850B stimulus package is in the works. Treasury Secretary Mnuchin just said ‘we will get cash to Americans immediately’.
- The Federal Reserve announced another $500B in support for the repo market to ensure funding is available in overnight markets.
- House stimulus bill is still working its way through Congress…the total fiscal stimulus being discussed is now around $1.5 trillion.
Many pundits have suggested closing the financial markets, which in our view, would cause unneeded uncertainty. Participants need markets open in order to access liquidity, or even to speculate, which provides that liquidity. Closing the exchanges in our view would be a mistake and cause panic.