Fed signals unlimited QE, adds aid for companies, municipalities

The Federal Reserve on Monday announced a massive second wave of initiatives to support a shuttered U.S. economy, including buying an unlimited amount of bonds to keep borrowing costs low and setting up programs to ensure credit flows to corporations and state and local governments.

The Fed will buy Treasuries and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy,” and will also buy agency commercial mortgage-backed securities, according to a statement. The Fed had said a week ago it would buy at least $500 billion of Treasuries and $200 billion of agency MBS.

Under the new programs the Fed will take on a slew of efforts, many aimed at directly aiding employers and households, as well as cities and states.

The Fed will support “the flow of credit to employers, consumers and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing.” It will be backed by $30 billion from the Treasury’s Exchange Stabilization Fund.

The Fed also “expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts” by the Small Business Administration.

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Other highlights

Two more programs were created to support large employers -- a Primary Market Corporate Credit Facility for new bond and loan issuance, and a Secondary Market Corporate Credit Facility to provide liquidity for outstanding corporate bonds.

Yet another program, a Term Asset-Backed Securities Loan Facility, will “enable the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and certain other assets.”

The central bank also said it would also expand the existing Money Market Mutual Fund Liquidity Facility to include a wider range of securities, including including municipal variable-rate demand notes, a step aimed at assisting states and cities.

Finally, the Fed said it would expand the existing Commercial Paper Funding Facility to also include high-quality municipal debt, another move to help cash-strapped states and cities.

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