Categories: Finance

FED going all out in the markets, waiting for Congress

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The Federal Reserve will launch a slew of programs targeted to assist in markets function during the coronavirus crisis. The recently proposed stimulus package to combat coronavirus did not get enough votes by the Senate Sunday evening.

The FED announced on March 23 that they intend to participate in programs mainly involving in asset purchasing. Also for the first time, the Fed will move into corporate bonds, purchasing investment-grade securities and through exchange-traded funds.

Other initiatives include an unspecified lending program for Main Street businesses and the Term Asset-Backed Loan Facility implemented during the financial crisis.

Another program worth US$300 billion [AU$509 billion] will be aimed at supporting credit flow to businesses, as well as expanding its Commercial Paper Funding Facility.

FED’s ‘aggressive’ programs to curb economic crisis

This aggressive announcement has also caused the markets to create a brief rally and further triggered the urgency to alleviate the economic crisis caused by the coronavirus.

Most experts are claiming that this move by the Fed represents an open-ended commitment to the QE program. Chris Rupkey, a chief financial economist at MUFG Union Bank, wrote in a note that the Fed policy is shifting into higher gear in trying to help support the economy, which looks like it is in free-fall at the moment.

Bitcoin also rallied above 6,000 in reaction to the announcement.

Dow goes down, waiting on Congress approval

Initially, the Dow Jones opened strongly with stocks such as Amazon, Netflix, and others, making the biggest moves during the premarket session. Despite the announcement of the Fed participating in purchasing programs, the Dow fell 400 points, as Congress are still working on closing a deal to a stimulus agreement.

Treasury Secretary Steven Mnuchin told CNBC on March 23:

“I think we’re very close. We need to get this deal done today […] We announced overnight with the Fed some very important actions supporting the asset-backed market, supporting the corporate bond market — primary and secondary.”

He also added that Congress needs to approve additional funds so that they can move forward and support the Americans in the current crisis.

Congress not in agreement of bill’s stipulations

In a key Senate procedural vote, the proposed stimulus funding package failed to reach a deal, with the final tally of 47-47, short of the 60 votes required to spur the bill into advancement.

However, some Democrats are not convinced with the proposed bill’s stipulations, as it limited compensation for companies that receive financial assistance. A potential solution that they are looking at is that they should have an inspector general to oversee the funds in order to have transparency and accountability.

A Senate GOP suggested that other hurdles included Democrats seeking more bargaining power for unions, increased fuel emissions standards for airlines, and an expansion of wind and solar tax credits.

Airlines also disagreed over the proposal, as the $500 billion funds only offered loans and guarantees, not cash grants and loans.

Congress close to a coronavirus stimulus deal

However, Senate Minority Leader Chuck Schumer says that they are “very close” to reaching a deal today. U.S. President Donald Trump also remains optimistic that the Senate will get there.

The Senate is now pressuring the Democrats to finalize the vote regarding the stimulus fiscal package as one of the senators is now diagnosed with the coronavirus.

Alec Padua

Alec a former mobile app developer turned independent singer-songwriter and busker based in the Philippines, who goes by the stage name "Alex Corner". He has released songs on Spotify and other music digital platforms. A self-taught trader and financial market enthusiast, he also started his own YouTube channel and blog called "The Trading Comedy" where he documents his trading journey in the Philippine Stock Market and beyond. He is also a casual gamer and streamer who enjoys FPS, RPG, and strategy games as well as conducting live charting sessions in the financial markets.

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