Fed Extends Lending Programs Through December Amid Slowing Recovery

The Federal Reserve on Tuesday announced an extension of its lending facilities that were originally scheduled to expire on or around Sept. 30, in a sign that the impact of the COVID-19 crisis continues to cloud the economic outlook.

The pallet of facilities, ranging from credit to small businesses under the Main Street Lending Program (pdf) to the purchase of corporate bonds via the Secondary Market Corporate Credit Facility (pdf), will be extended through the remainder of 2020, the Federal Reserve Board said in a statement.

The Fed said the aim of the extension is to “facilitate planning by potential facility participants and provide certainty that the facilities will continue to be available to help the economy recover from the COVID-19 pandemic.”

The lending facilities have provided a key backstop to the pandemic-ravaged economy, stabilizing markets and ensuring that the flow of credit to households, businesses, as well as state and local governments does not dry up. Fed officials said earlier that the central bank stood ready to deploy all tools at its disposal to buoy Americas troubled economy, including by keeping the facilities operational as long as needed.

Some economists suggest the timing of the announcement suggests Fed economists are poised to express some gloom in a statement on the economic outlook that will come after Wednesdays culmination of a two-day Fed policy meeting on interest rates. The Feds benchmark short-term interest rate is currently set near zero.

“The manner the #Fed did this—at the start of a two-day policy meeting—could well raise as many questions as why, if not more,” Mohamed El-Erian, chief economic adviser at Allianz, said in a tweet.

“Sign of times. Sigh,” wrote David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings, in a post on Twitter.

After the previous meeting of the Federal Open Market Committee last month, Fed officials said that rates would likely stay at around zero through 2022, although minutes of the June meeting show some officials felt the committee should provide “greater clarity” about the future path of rates.

Known as “forward guidance,” this kind of statement about the Feds expectation for future interest rate levels helps provide households and businesses with greater certainty about the cost of borrowing. If such guidance indicates that officials expect to keep interest rates low for longer going forward, it may encourage both companies and consumers to borrow and spend, providing stimulus to the economy.

With Fed policymakers sounding a largely downbeat note on the economy in recent speeches and appearances, some Fed watchers cited by The Associated Press expect no rate increase until 2024 at the earliest.

Lael Brainard, a member Read More – Source