Over the past week, the Federal Reserve has taken several decisive actions in order to quell market instability caused by COVID-19: On March 15, the Federal Reserve made a second emergency rate cut that lowered the Fed funds rate to a range of 0 – 0.25% in order to encourage liquidity and financial stability. On March 16, the Fed conducted additional repo operations by announcing the repurchasing of at least $500 billion of Treasury securities and would house or refinance at least $200 billion of MBS over the next few months. The Fed also called for reserve requirements to be removed on March 26 which would allow for $1.6 trillion to be immediately available for loans to households and businesses. Shortly after the Fed’s actions including injecting $1 trillion into the overnight repo markets, the Fed started reintroducing tools that were previously used to combat the 2008 financial crisis. The first tool reintroduced on Tuesday was the Commercial Paper Funding Facility (CPFF). The CPFF is designed to support the flow of credit to households and businesses and is in direct response to the decreased liquidity in the commercial paper market over the past week. The Fed introduced this tool in order to assure that companies who provide auto loans and mortgages have the liquidity to maintain their operations. The second tool reintroduced by the Federal Reserve on Wednesday was the Primary Dealer Credit Facility (PDCF). The PDCF will go into effect on March 20, and will allow primary dealers to borrow from the New York Fed in times of market stress. The Fed’s term sheet detailing the type of securities are eligible for the PDCF are available here. Finally, the Fed announced actions on Thursday in order to lower the global financial impact of COVID-19 by establishing temporary swap lines with Australia, Brazil, Denmark, South Korea, Mexico, Norway, New Zealand, and Sweden. The intention behind this move was to lessen the global strain on businesses and households by support provisions of $60 billion for Australia, Brazil, South Korea, Mexico, Singapore, and Sweden; and $30 billion for Denmark, Norway, and New Zealand.
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