Congress and therefore the Trump administration have embarked upon a huge federal stimulus program to mitigate the impact of the coronavirus on the U.S. economy. At an equivalent time, the Federal Reserve System has stepped up to bolster financial markets, having announced, additionally to its ongoing support of the repo market, a series of 10 loan programs, some old and a few resurrected from the 2008 financial crisis.

So far, markets have responded relatively favorably to the announced programs and have protected from their lows. But apart from the injection of funds to support business within the first congressional stimulus program, the markets’ response has been based only on hope instead of tangible evidence that the programs are having the specified effect.

The $349 billion within the Paycheck Protection Program was quickly exhausted, but Congress expanded the quantity by another $310 billion on April 24. it’s too early to be ready to assess the impact of the primary round of relief on the economy, including that of round two.

As for the Fed programs, four are extensions of programs that were put in situ during the 2008 crisis. they’re the first Dealer Credit Facility (PDCF), the cash Market Fund Liquidity Facility (MMLF), the cash equivalent Funding Facility (CPFF) and therefore the Term Asset-Backed Securities Loan Facility (TALF). These programs were designed to support financial institutions and therefore the functioning of key segments of short-term money markets.

Five of the remaining six programs extend the Fed’s reach to supplying credit to nonfinancial entities. These programs include two programs that support corporate borrowing (the Primary and Secondary Market Corporate Credit Facilities [PMCCF and SMCCP]), two programs for smaller firms (the Main Street New and Expanded Loan Facilities [MSNLF and MSELF]), and a program to support the municipal stock exchange (the Municipal Liquidity Facility [MLF]).

The Fed also created the Paycheck Protection Program Lending Facility (PPPLF), which might enable the Fed to supply liquidity to financial institutions where the collateral is government-guaranteed loans made under the Paycheck Protection Program. Those loans are typically made by banks through the U.S. Small Business Administration, which is managing the PPP. Finally, it’s established a program for foreign central banks within the sort of currency swaps called the financial institution Liquidity Swaps.

Although, like the Fed’s repo program, the potential amounts might be huge, so far little went on in terms of implementation of the programs, and therefore the channeling of funds to their projected uses has yet to require place.

The first two programs (MMFL and PDCF) were announced on Annunciation and were a touch quite $30.6 billion and $27.7 billion, respectively. Since then, use of the MMFL has ranged between $52.7 billion and $48.8 billion as of April 22. Use of the first dealer credit facility has been smaller, ranging between $27.7 billion and a high of $33.4 billion. By comparison, the PDCF peaked at about $148 billion within the third quarter of 2009.

The two other lending programs that have just gotten off the bottom are much smaller. The cash equivalent Funding Facility is now only at $3.3 billion, whereas during the financial crisis it got as high as $224.2 billion in January 2009. the most recent lending program to start out is that the PPP Liquidity Program, and it’s only at $19.4 billion as of April 29. Finally, the really large program by comparison is that the financial institution Liquidity Swaps, which totaled $439 billion as of April 29.

What we see is that compared to past usage, most of those current programs are quite small, and thus it’s difficult to work out what positive effects they will or will wear markets. the opposite programs have yet to be operational, but we’ll monitor all of them and report on their likely impacts in future commentaries. As mentioned at the outset, the positive effects that are realized are largely expectational and not rooted in hard performance numbers yet.


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