What’s next for Main Street, Wall Street as Fed lending programs are set to expire
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Treasury Secretary Steve Mnuchin told the Federal Reserve Thursday that he wants his money back. Well, not his money, but rather $455 million from the CARES Act.
This money supported about a half a dozen Fed programs that stabilized credit markets. The Fed, meanwhile, has all but said directly that’s a bad idea.
Fed Chair Jerome Powell said the time to end these programs was “not soon.” So what did these programs do?
In different ways, these programs allowed the Fed to get down and dirty in the mud of credit markets. So for example, a couple of them allowed the Fed to actually buy corporate bonds.
Another allowed the Fed to buy short-term bonds from state and local governments. Another allowed it to indirectly buy up car loans and student loans.
“They stood there and said, ‘We’ll be a buyer of these things; we will support these markets,'” said Yousef Abbasi, global market strategist at StoneX. Now the reason we care that the Fed could buy these securities is that for a while there in this pandemic, it was looking like nobody else would.
And if nobody wants to buy up, for example, loans, people aren’t gonna get as many loans. And loans are what kept some businesses alive and local governments functioning.
“You’re talking about essentially the entire credit markets could have froze or nearly froze if the Fed didn’t step in with these facilities,” Abbasi said.
The Fed supported credit markets, so credit markets could support people.
“They allow for there to be liquidity or money available to banks or institutions to have them to be able to lend you money,” said Chris Campbell, chief strategist at Duff & Phelps and former assistant secretary of the Treasury.
By all accounts, these programs worked.
“Treasury felt that it has succeeded so well that it’s no longer necessary,” said Edward Altman, professor emeritus of finance at New York University.
Altman sees that as ill-advised, given the looming threat of further shutdowns. Secretary Mnuchin has said businesses need grants now, not loans.
The $455 billion in question could be repurposed into a miniature stimulus deal before a new president is sworn in.
COVID-19 Economy FAQs
Are states ready to roll out COVID-19 vaccines?
Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.
How is the service industry dealing with the return of coronavirus restrictions?
Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.
How are hospitals handling the nationwide surge in COVID-19 cases?
As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.
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