Fed to add $1.5 trillion in 'temporary liquidity' to Wall Street

Fed to add $1.5 trillion in 'temporary liquidity' to Wall Street

Under the Fed's existing program to buy $60 billion a month in securities, the purchases will be widened to include coupon-bearing notes across a range of maturities to match the maturity composition of the Treasury market, it said.

"While we think central bank policy is important, we think the fiscal is much more important at this stage", said Eric Freedman, chief investment officer at U.S. Bank Wealth Management. The largest in the world, it can run smoothly as bond demand increases with investors desperately seeking safe assets amid the stock carnage. Until now, the Fed had focused its purchases on short-term Treasury bills, a move meant to emphasize that the balance sheet expansion was part of a technical effort to increase liquidity and not a way to provide stimulus. The New York Fed will issue two three-month terms and one one-month term.

The US government debt market. The S&P 500 ended the day down a staggering 9.5% in its worst day since Black Monday more than three decades ago.

That was preventing deals being done and the liquidity crunch threatened to spread to other markets such as corporate bonds and equities, as it did in 2008 in the wake of the collapse of Lehman Brothers. The prices of longer-term bonds also go up and down more for any given amount of change in their yield, making them riskier to hold. Investors were unsure the Fed move will be sufficient to shelter the economy from the outbreak's fallout - and are still waiting for a robust US government response. The market for USA government debt is enormous - roughly $17.5 trillion - and is the largest single pool of investment assets in the world.

"When that has a few interruptions, be careful, that's really troubling", said Kathy Bostjancic, chief financial economist for the United States at Oxford Economics. You can even launch a great bond purchase program aimed at further reducing interest rates.

The Fed's actions "should limit the damage", Shepherdson said. This would be similar to programs the Fed undertook during and after the financial crisis that were dubbed "quantitative easing". Some analysts said that governments in the USA and Europe needed to do more through tax and spending policies.

Earlier in the day, the European Central Bank implemented new targeted stimulus measures to cushion the impact of the virus outbreak on the economy. But Christine Lagarde, the ECB's president, said that monetary policy couldn't do it alone and called for a "decisive and determined" response from governments. The new coronavirus is presenting them with a very different challenge, at a time when some policymakers have barely caught their breath from the last economic disaster.

President Donald Trump has been vocal in urging the Fed to match the monetary stimulus measures of other central banks.

Europe's top monetary authority didn't cut rates as investors had hoped - a sign that, with rates already very low, monetary policy is running short on ammunition. But Lagarde underlined on Thursday a factor that seems to be spooking financial markets: Central banks are limited in their capacity to help.

Authorities are putting major economies, businesses and travel on lock down around the world - slamming the prospect for the global economy. Consumers are starting to cut back on their spending in the US and around the world. The ECB's key policy rate on bank deposits is already at an unprecedented minus 0.6 percent.

After the cut ahead of the April 3 policy or on that date, RBI will deliver another rate cut at the June review and go for a pause after cutting again in October, it said, lowering its inflation expectations for FY21 to 4 per cent from 4.8 per cent earlier.



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