Fed pumps more money into economy

Fed says SMCCF will begin buying portfolio of corporate bonds

The Federal Reserve Board announced updates to the Secondary Market Corporate Credit Facility, or SMCCF, which will begin buying “a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.”

The Fed added that “the SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds.

This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria.

Feds crank up their printing presses

This indexing approach will complement the facility’s current purchases of exchange-traded funds.

The Primary Market and Secondary Market Corporate Credit Facilities were established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the CARES Act.”

The SMCCF supports market liquidity by purchasing in the secondary market corporate bonds issued by investment grade U.S. companies or certain U.S. companies that were investment grade as of March 22, 2020, as well as U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. corporate bonds.

Feds bailout Wall Street firms

The SMCCF’s purchases of corporate bonds will create a portfolio that tracks a broad, diversified market index of U.S. corporate bonds.

The Treasury, using funds appropriated to the ESF through the CARES Act, will make an equity investment in an SPV established by the Federal Reserve for the SMCCF and the Primary Market Corporate Credit Facility.

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Feds inject more money into the economy

Federal Reserve to provide up to $2.3T in loans to support economy

The Federal Reserve on Thursday took additional actions to provide up to $2.3 trillion in loans to support the economy.

“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” said Federal Reserve Board Chair Jerome Powell. “

Powell puts more money into the economy. Stockwinners

The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

The actions the Federal Reserve is taking today to support employers of all sizes and communities across the country will: Bolster the effectiveness of the Small Business Administration’s Paycheck Protection Program, or PPP, by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.

Cash is infused into the economy at a record rate, Stockwinners

The PPP provides loans to small businesses so that they can keep their workers on the payroll.

The Paycheck Protection Program Liquidity Facility, or PPPLF, will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value; Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program.

Feds put more money in PPP

The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, will provide $75 billion in equity to the facility; Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities, or PMCCF and SMCCF, as well as the Term Asset-Backed Securities Loan Facility, or TALF.

These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury; and help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities.

The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion.

Principal and interest payments will be deferred for one year.

Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.

Banks will retain a 5 percent share, selling the remaining 95 percent to the Main Street facility, which will purchase up to $600 billion of loans.

Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act.

Firms that have taken advantage of the PPP may also take out Main Street loans.

“The Federal Reserve and the Treasury recognize that businesses vary widely in their financing needs, particularly at this time, and, as the program is being finalized, will continue to seek input from lenders, borrowers, and other stakeholders to make sure the program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds. Comments may be sent to the feedback form until April 16,” the central bank said.

To support further credit flow to households and businesses, the Federal Reserve will broaden the range of assets that are eligible collateral for TALF.

As detailed in an updated term sheet, TALF-eligible collateral will now include the triple-A rated tranches of both outstanding commercial mortgage-backed securities and newly issued collateralized loan obligations.

The size of the facility will remain $100 billion, and TALF will continue to support the issuance of asset-backed securities that fund a wide range of lending, including student loans, auto loans, and credit card loans.

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Feds Cut Rates on All Instruments!

Federal Reserve cuts federal funds target rate by 25 basis points

The Federal Reserve said in today’s statement, “Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.

Powell, FOMC Chair, Stockwinners
Fed Chief Powell. Stockwinners.com

Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft.

On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.

As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

Long Term Rates

The Federal Reserve also said in today’s statement, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated.”

Bernanke came up with “Quantitative Easing” in 2008, Stockwinners

If you have no idea what the above paragraph means, this may help. Back in 2008, Ben Bernanke, then the Fed Chair, came up with a clever idea! Since the rates at the time where near zero. He needed a way to lower the rates, he started buying long term government bonds. The added demand for bonds caused bond prices to rise thus pushing the rates lower. In the past few quarters, the Feds have been selling these bonds, pushing prices lower, thus higher long term rates. Today’s announcement basically says Feds are ending the bond sales two months earlier, long term rates (mortgage prices) will now go lower.

Powell Comments

Federal Reserve Chair Jerome Powell said the easing was to ensure against downside risks, as he begins his press conference.

He acknowledged the shift in the policy stance since December’s pivot. Fed has seen both positive and negative developments since the June meeting, including a stronger job market, but weaker manufacturing and disappointing foreign growth, while contacts continue to cite ongoing trade uncertainties are giving companies pause.

The Committee has gradually lowered the assessments of growth and that led to the easing today. On whether a 25 bp cut will prop up inflation, he noted one has to look at the Committee’s actions over the year as it’s moved to a more accommodative stance.

The Committee is thinking of today’s action as a mid-cycle adjustment to policy, designed to provide support for the economy, ensure against downside risks, and support inflation. Chair Powell continued to appeal to downside risks and below target inflation as the main threats to the favorable outlook.

He added, the Fed will monitor the evolution of trade uncertainty, which do seem to be having significant effect on the economy. He thinks trade is a new factor that the FOMC will have to assess “in a new way.”

The chair again said it’s not appropriate to just look at the quarter point easing, but rather the evolution of the Fed’s stance from tightening to easing, with the economy picking up since the end of 2018, which suggests monetary policy is working (though he declined to take full credit for the economy’s gains).

10-year yields fall, Stockwinners
Ten year yields approach 2.00 percent, Stockwinners

Market Action

The Fed repeated it will “monitor” incoming information and will “act as appropriate to sustain the expansion,” not really suggesting the path ahead. The long end of the Treasury market is leading the way with the benchmark 10-year 4.4 bps lower to test 2.00, versus 2.023% just ahead of the announcement. The 2-year is down 1.4 bps to 1.83% versus 1.81% earlier. Hence, the curve has flattened to 17 bps from around 20 bps previously.

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No more rate hikes in 2019

Majority of Fed members see rates unchanged for rest of 2019

Members see rates to remain unchanged in 2019, Stockwinners

Minutes from the last Federal Reserve meeting read, “With regard to the outlook for monetary policy beyond this meeting, a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year.

Several of these participants noted that the current target range for the federal funds rate was close to their estimates of its longer-run neutral level and foresaw economic growth continuing near its longer-run trend rate over the forecast period.

Participants continued to emphasize that their decisions about the appropriate target range for the federal funds rate at coming meetings would depend on their ongoing assessments of the economic outlook, as informed by a wide range of data, as well as on how the risks to the outlook evolved.

Short term rates should decline as 30-year rates rise, Stockwinners

Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments.

Some participants indicated that if the economy evolved as they currently expected, with economic growth above its longer-run trend rate, they would likely judge it appropriate to raise the target range for the federal funds rate modestly later this year.”

Economic growth in 2019 likely lower than previous forecast

“Participants continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes over the next few years.

Underlying economic fundamentals continued to support sustained expansion, and most participants indicated that they did not expect the recent weakness in spending to persist beyond the first quarter.

Nevertheless, participants generally expected the growth rate of real GDP this year to step down from the pace seen over 2018 to a rate at or modestly above their estimates of longer-run growth. Participants cited various factors as likely to contribute to the step-down, including slower foreign growth and waning effects of fiscal stimulus.

A number of participants judged that economic growth in the remaining quarters of 2019 and in the subsequent couple of years would likely be a little lower, on balance, than they had previously forecast. Reasons cited for these downward revisions included disappointing news on global growth and less of a boost from fiscal policy than had previously been anticipated.”


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