Fed Announces Unlimited Bond Buying Program to Support Americans

Jerome Powell and Donald Trump Photographer: Andrew Harrer
  • Fed Announces Unlimited Bond Buying Program to Support Americans

The US Federal Reserve on Monday announced it will commence a bond-buying program to mitigate the impact of the coronavirus on businesses, investors and families across the country as experts fear the pandemic could plunge the nation into depression along with the rest of the world.

The central bank had lowered interest rates to zero a week ago to support employment and stabilise prices, however, the fast-spreading COVID-19 differ such meagre move as the bearish trend continues across every sector, forcing the fed to announce it would commence an unlimited bond-buying program to encourage financial institutions to loan money to small businesses looking to support activities amid almost zero movements.

Bond buying program is a central bank program of buying debt to encourage investors and financial institutions to loan money to small businesses during a tough economic period. The central bank’s unlimited bond-buying program means it will buy unlimited debt from the financial institutions, hence bearing the entire risk.

This was after President Trump’s almost $2 trillion stimulus package failed to get timely approval at the Senate, leaving both the Central Bank and Presidency to seek an alternative as the nation’s coronavirus cases rose above 35,000 this week.

Fed Chair, Jerome Powell, during a conference, said aggressive efforts must be taken across both the private and public sectors to curb the impact of the pandemic.

“Economic policy experts must do what we can to ease hardship caused by the disruption to the economy,” Powell said in a 42-minute conference call Sunday evening. “We are prepared to use our full range of tools to support the flow of credit to households and businesses.”

It is unclear if the measures will be enough to curb the impact of the pandemic without a viable cure, especially after the number of confirmed cases rose exponentially in the world’s largest economy.

During the last economic recession, the Fed purchased bonds of almost $4 trillion through a program called quantitative easing to stimulate the economy. Experts are saying the present move, unlimited bond-buying program, could dwarf that number given the current situation.

While the stimulus failed to lift the market on Monday, it bolstered outlook on Tuesday as Wall Street and crude oil rose by at least 4 percent during the early hours of trading.

This may be because other central banks across the world have also commenced stimulus to mitigate risk and instituted measures to curb the spread of the coronavirus pandemic.

“Today there is a strong recovery connected to the move that the Fed has introduced this massive weapon,” said Francois Savary, CIO of wealth manager Prime Partners, adding the Fed needed to prioritize fixing the seize-ups in funding markets.

“The key issue at the end of the day is that we need to deal with a credit markets that is completely closed. First they needed to stop this increase in bond yields… second, they needed to make sure that there is a return of liquidity in the credit then it will be equities – in that sequence.”

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]

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