Fed unleashes another $2.3 trillion to support the economy

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The Federal Reserve is continuing its extraordinary efforts to prop up the US economy in the wake of the coronavirus pandemic.

The central bank announced a new $2.3 trillion round of loans that include even more support for small businesses and consumers — and, for the first time, for states, cities and municipalities, too.

The Fed said Thursday that it is creating a Municipal Liquidity Facility with up to $500 billion in loans and $35 billion in credit protection in order to “help state and local governments manage cash flow stresses caused by the coronavirus pandemic.”

Through this lending program, the Fed said it will buy short-term debt from states and Washington D.C., counties with at least 2 million people and cities with a population of 1 million and above.

“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,” said Fed chair Jerome Powell in a statement.

The Fed also said Thursday that it will supply financing to banks taking part in the Small Business Administration’s Paycheck Protection Program.

Additionally, the central bank said it was boosting its Main Street Lending Program for small businesses with an additional $600 billion in loans as well as $75 billion in funding from the Treasury Department via the Coronavirus Aid, Relief, and Economic Security Act (CARES) fiscal stimulus.

And the Fed is also expanding three other loan facilities it had already set up for consumers and businesses with $850 billion more in credit backed by $85 billion in credit protection from the Treasury Department.

The Fed is hoping that these moves, coupled with numerous other lending programs and the cutting of interest rates to zero, will be able to support the US economy at a time when job losses are mounting and many businesses are being forced to close their doors.

“Today’s announcements from the Fed represent an aggressive but appropriate expansion of its credit facilities, aimed at ensuring an ample supply of liquidity across the economy,” said Steven Friedman, senior macroeconomist at MacKay Shields, in an email to CNN Business.

Economists expect the Fed to do even more as needed. It’s almost as if the Fed has a blank check — written in invisible ink — and that there is unlimited overdraft protection.

“The liquidity commitment put forward by the Fed strongly suggests that this is the latest in a series of policy steps to address the economic fallout of the pandemic and is not the final word,” said Joseph Brusuelas, chief economist with RSM US, in a report.

“The Fed is clearly not out of ammunition, nor is it done exhausting its potential liquidity commitments,” Brusuelas added.

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