Report: Fed takes more debt to bail out economy in wake of COVID-19

Federal Reserve
The Federal Reserve is willing to take on as much as debt as it needs to help business deal with the effects of coronavirus. (Pixabay)

The Federal Reserve has been busy the past few weeks trying to keep the struggling U.S. economy afloat. This morning, the Federal Reserve said it will buy as much government debt as deemed necessary and will also begin lending to small and large businesses and local governments to help them weather the crisis, according to an Associated Press report.

Previously, the Fed cut interest rates to zero in an effort to stabilize the economy. But as global financial markets continue to struggle and unemployment claims spike from shuttered businesses laying off thousands of employees, the economy continues to worsen.

According to the AP report, the Fed’s announcement Monday removes any dollar limits from its plans to support the flow of credit through an economy that has been ravaged by the viral outbreak. The central bank’s all-out measures have now exceeded its efforts to rescue the economy from the 2008 financial crisis.

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In its announcement, the Fed said it will establish three new lending facilities that will provide up to $300 billion by purchasing corporate bonds, a wider range of municipal bonds and securities tied to such debt as auto and real estate loans, the AP report said. The Fed will also reportedly buy an unlimited amount of Treasury bonds and mortgage-backed securities to try to hold down borrowing rates and ensure those markets function smoothly.

According to the report, the Fed last week said it would buy $500 billion of Treasuries and $200 billion of mortgage-backed securities, but quickly ran through roughly half those amounts by the end of the week.

Though several industry observers were quoted as saying the actions will definitely help, the immediate effect of the Fed’s announcement is uncertain. Rumors that the U.S. will enter a significant recession continue to circulate.

So far, the financial markets have greeted the Fed’s announcement with skepticism. Late Monday morning, online reports noted that several stock indexes—S&P (Standard & Poors), Dow, and Nasdaq—were all down in single digits in early trading.

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