On Monday, the Federal Reserve unveiled a major expansion of lending programs with the goal of keeping the credit markets functioning in a time of crises. The Fed announced that the purchases of Treasury and mortgage securities that it approved last week are essentially unlimited, and that it would buy $375 billion in Treasury securities and $250 billion in mortgage securities this week.
The Fed indicates that, “In light of recent disruptions in economic conditions caused by the coronavirus disease 2019 (COVID-19) and current strains in U.S. financial markets, the Board is issuing an interim final rule that revises the definition of eligible retained income for purposes of the Board’s total loss-absorbing capacity (TLAC) rule. The revised definition of eligible retained
income will make any automatic limitations on capital distributions that could apply under the TLAC rule more gradual and aligns to recent action taken by the Board and the other Federal banking agencies in the capital rule.”
The volatility of the financial markets is expected to continue as the repercussions from the COVID-19 pandemic continue. For example, General Electric Co’s aviation unit announced Monday plans to cut its total U.S. workforce by about 10%, as airlines delay purchases amid the coronavirus pandemic.
“Fed policy is shifting into a higher gear to try to help support the economy which looks like it is in freefall at the moment,” Chris Rupkey, chief financial economist at MUFG Union Bank, wrote in an email, according to Yahoo Finance. “The central bank is shifting from being not just the lender of last resort, but now it is the buyer of last resort. Don’t ask how much they will buy, this is truly QE [quantitative easing] infinity.”