Federal Reserve Chairman Jerome Powell promised Friday to use untapped firepower to bolster the U.S. economy if a second wave of coronavirus infections hit the U.S., as more states unfurl plans to reopen after roughly two months of lockdowns.
A lot has happened since late March when the Fed said it would offer more than $2 trillion in emergency loans to Wall Street and Main Street to help them stay afloat during national lockdowns imposed by officials looking to prevent new coronavirus infections.
Bankers and investors, working from home, have kept the credit markets open. Highly rated U.S. companies already borrowed a record $1 trillion in the bond market in the first five months of 2020, the fastest start to a year ever, even though corporate profits have plunged.
U.S. stocks also have rallied, leaving the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.29% at the end of May only 14% off its February all-time highs, even while tensions between Beijing and Washington flared once again and threatened to dampen optimism emboldened by the Fed’s unprecedented backstops.
But Wall Street’s bullish blush, despite millions looking for work, also raises questions about if the Fed needs to fully deploy its arsenal of emergency funds.
Here’s the latest:
May 28 : The U.S. Treasury Department injected about $31 billion of equity into the Fed’s credit facilities, ramping up the central bank’s funding capacity as it expands its balance sheet to more than $7.1 trillion.
Primary and Secondary Market Corporate Credit Facilities
May 28 : While the Fed’s balance sheet shows the primary market corporate credit facility has yet to make any purchases, its secondary facility, which buys existing corporate debt, has been ramping up its purchases of corporate debt exchange-traded funds.
April 19 : The Fed beefed up both corporate credit facilities to provide up to $750 billion worth of credit, including to newly “fallen angels,” or companies whose BBB credit ratings have been downgraded to junk territory. However, the facility won’t fund banks that take customer deposits or companies that received specific support from the $2.2 trillion CARES Act. The facility was announced on March 23 as the sector was being pummeled by record outflows. The idea has been to prevent companies facing pandemic fallout from shedding employees and business relationships, which could further damage the economy.
“Small” Businesses :
May 29: Fed’s Powell says it will be making loans within days out of its $600 billion Main Street Lending Facility, which now includes bigger firms with more employees. That means up to $5 billion in annual revenue, up from $2.5 billion initially. The Fed also lowered its minium loan size to $500,000 from $1 million, potentially pitting smaller companies against big, household names for emergency funding.
Congress also is looking at shaking up the Paycheck Protection Program, after it injected another $320 billion into the Fed’s initial $350 billion program, in part because the uptake among businesses has slowed, after its first pot of funds in April quickly ran out.