The Federal Reserve is turning The Notorious B.I.G’s “mo’ money, mo’ problems” lyric on its head, instead throwing more money at the increasingly problematic and economy-killing coronavirus pandemic.
The central banking system of the United States moved yet again on Thursday to prop up an American economy under siege by the coronavirus, this time raining down as much as $2.3 trillion in new loans.
“The challenge we face today is different in scope and character from those we’ve faced before,” Federal Reserve Chairman Jerome Powell said Thursday in a livestream video hosted by the Brookings Institute, the 104-year-old non-partisan think tank based in Washington, D.C.
Since the COVID-19 pandemic accelerated across the U.S. in March, massive furloughs and thousands of retail stores forced to shut down have changed the face of American life in a matter of weeks. Deserted streets, closed-up schools and restaurants only accepting takeout and delivery order reflect stay-home orders engineered to enforce social distancing measures seen curtailing the highly transmissible virus. According to the Centers for Disease Control and Prevention’s data Thursday, confirmed COVID-19 cases have soared past 427,000 in the U.S., where fatalities now exceed 14,000 and rising.
“People have been asked to put their lives and their livelihoods on hold, at significant economic and personal cost,” Powell said. “We are moving with alarming speed from 50-year lows in unemployment to what will likely be very high, although temporary, levels.”
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Several of the programs announced Thursday “rely on emergency lending powers that are available only in very unusual circumstances, such as those we find ourselves in today,” Powell said, and only with the blessing of Treasury Secretary Steve Mnuchin.
“We are deploying these lending powers to an unprecedented extent, enabled in large part by the financial backing from Congress and the Treasury,” Powell added.
In an effort to avert absolute economic catastrophe, the Fed’s maneuvering Thursday will help to shore up the efficacy of the Small Business Administration’s Paycheck Protection Program (PPP). It will achieve this goal by injecting liquidity into financial institutions participating in the scheme through term financing backed by PPP loans to modestly sized businesses most at risk of suffering during a downturn.
“It is worth remembering that the measures we are taking to contain the virus represent an essential investment in our individual and collective health,” Powell said, describing the financial burdens as “falling on those least able to carry them. “As a society, we should do everything we can to provide relief to those who are suffering for the public good.”
By purchasing as much as $600 billion in loans administered under the Main Street Lending Program, the Fed also seeks to guarantee sufficient credit flow to small and mid-sized businesses. Using $75 billion from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Treasury will also direct its resources toward this facility, the Fed said.
Powell credited the recently passed CARES Act as “an important step in honoring [our] commitment” to extending an economic lifeline to vulnerable households and businesses. And the Fed, he added, “can also contribute in important ways by providing a measure of relief and stability during this period of constrained economic activity, and by using our tools to ensure that the eventual recovery is as vigorous as possible.”
In another example of the Fed wielding “its full range of authorities,” the central banking body is taking steps to escalate the flow of credit to households and businesses through capital markets. It’ll do so by broadening the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF), accommodating up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury.
State and local governments stand to benefit as well, with the Fed offering assistance in “cash flow stresses caused by the coronavirus pandemic” with $500 billion under a newly formed facility and Treasury backing up to $35 billion.
To ensure the “program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds,” both the Fed and the Treasury are soliciting input from stakeholders including lenders, prospective borrowers and others, through April 16.
The National Retail Federation (NRF) applauded the Fed’s latest move but called for further action and industry support.
“As part of the next round of liquidity support for U.S. businesses, today’s release by the Federal Reserve Bank of new term sheets is a welcome development,” NRF president and CEO Matthew Shay said. “By strengthening the efficiency of the Paycheck Protection Program and clarifying terms to speed relief to small and mid-market businesses through the Mainstreet Lending Program, the government is making great progress toward quick action with both clarity and guidance.
Shay commended Mnuchin’s intention to collaborate with Powell “on how the two agencies can continue to help larger businesses that collectively employ millions of Americans with greater liquidity and a bridge to the other side of this pandemic.”
Despite these signs of progress, Shay pushed for further action and dialogue, noting that “there is more to be done.”
“We continue to press our case with the White House asking for deferred payment of duties on imported goods until the economy is on a stronger footing,” he said. “And just today, on behalf of leading retailers across the country, we sent a letter to Congress outlining a number of recommendations that would help improve the effectiveness and impact of the CARES Act. From expanding eligibility to small businesses with multiple locations to increasing funding for Economic Injury Disaster Loans by $50 billion, we know that more can be done to provide certainty for the retail industry and the 52 million American jobs that depend on its health.”
The NRF chief lauded “the speed by which our elected leadership is addressing critical needs.”
“We will continue to work with them in an effort to ensure the vitality of the industry, the safety of its workers and the health of its customers,” Shay said.