Cheat sheet: 8 ways Fed is using emergency powers to counter pandemic
WASHINGTON — The Federal Reserve has taken unprecedented actions to stabilize U.S. financial markets and keep credit flowing as the coronavirus pandemic halted the nation’s longest economic expansion.
The Fed acted quickly March 3 by announcing its first emergency interest rate cut since the 2007-9 financial crisis. The central bank further slashed the federal funds rate to zero on March 15 while at the same time urging banks to lend via the discount window.
But the Fed has also used its emergency lending powers under authority granted by Section 13(3) of the Federal Reserve Act to prepare a number of credit facilities to rescue flailing markets, something that the central bank had not done since the financial crisis.
Over a decade ago, the Fed created six credit facilities and used its emergency lending powers to provide financial assistance to AIG, Bear Stearns, Citigroup and Bank of America. The Dodd-Frank Act later amended Section 13(3) to prevent the Fed from bailing out specific firms.
In less than two months this year, the Fed has announced 11 different credit facilities, all intended to support the flow of credit to households and businesses that may have encountered financial difficulties as a result of the coronavirus.
Although the Fed has only officially fired up four of the 11 programs, the announcements on their own can serve to soothe markets and ease some financial pressure already.
“We haven't made any corporate loans in those facilities … and yet there's a tremendous amount of financing going on, and that's a good thing,” Fed Chairman Jerome Powell said in an April 29 press conference. “The ultimate demand for these facilities is quite difficult to predict because there is this announcement effect that it really gets the market functioning again.”
Powell also pledged to use the Fed’s complete range of tools to limit economic fallout, saying that the central bank had the ability to expand existing facilities if needed.
Here’s a breakdown of all of the credit facilities the Fed has established or announced using its emergency lending powers: