Fed Unveils New Massive Credit Support and Money Pump Programs

Federal Reserve Bank of New York

This morning, the Federal Reserve Bank has unveiled a major expansion of lending programs.

The Fed said it has removed any limits to what it might purchase of Treasury and mortgage securities. It said it would buy $375 billion in Treasury securities and $250 billion in mortgage securities this week.

The Fed also said it would begin purchasing commercial mortgage-backed securities issued by government-supported entities, which primarily consist of debt on apartment buildings.

“While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the central bank said. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.

And the Fed didn't stop there.

It also said it would launch three new lending facilities, including the crisis-era Term Asset-Backed Securities Lending Facility, or TALF, which it in 2008 used to support consumer and business credit markets. The Fed will lend money to investors to buy securities backed by credit-card loans and other consumer debt.

The central bank also announced plans for two lending facilities to support corporate credit markets. One will lend to investment-grade companies and provide bridge financing of four years, while a second will buy corporate bonds issued by highly rated companies and U.S.-listed exchange-traded funds in the investment-grated corporate-bond market.

Those three facilities are designed to support $300 billion in new financing, and the Treasury Department will cover $30 billion in losses.

The Fed also expanded two programs it unveiled last week to include additional classes of municipal debt and said it would lower the pricing on one of those, the Commercial Paper Funding Facility.

It then went on to say that it would soon roll out a Main Street Business Lending Program that will support lending to eligible small and midsize businesses.

It is unclear at this time how much of this will simply be a money shuffle and how much will be money pumped into the system, but upon first look, it appears to be massive in terms of money being pumped into the system.

I repeat, the price inflation on the other side of this lockdown is going to be massive.

-RW