Exclusive compilation! Full text of Feds statement on open quantitative easing

category:Finance
 Exclusive compilation! Full text of Feds statement on open quantitative easing


1. Federal Open Market Committee statement issued by the Federal Reserve

FederalReserveissuesFOMCstatement

The Federal Reserve is committed to using all its tools to support the U.S. economy at this challenging time, thereby promoting its maximum employment and price stability goals.

The FOMC is taking further action to support the flow of credit to households and businesses by addressing market pressures on treasury bonds and proxy mortgage-backed securities. The Federal Reserve will continue to purchase the necessary amount of treasury bonds and institutional mortgage-backed securities to support smooth market operation and effectively transmit monetary policy to the broader financial environment. The Commission will include the purchase of MBSS in its purchases of MBSS. In addition, the open market operating desk will continue to provide large-scale overnight and term repo operations. The committee will continue to closely monitor market conditions and will assess the appropriate pace of its securities purchases at future meetings.

TheFederalOpenMarketCommitteeistakingfurtheractionstosupporttheflowofcredittohouseholdsandbusinessesbyaddressingstrainsinthemarketsforTreasurysecuritiesandagencymortgage-backedsecurities.TheFederalReservewillcontinuetopurchaseTreasurysecuritiesandagencymortgage-backedsecuritiesintheamountsneededtosupportsmoothmarketfunctioningandeffectivetransmiss ionofmonetarypolicytobroaderfinancialconditions.TheCommitteewillincludepurchasesofagencycommercialmortgage-backedsecuritiesinitsagencymortgage-backedsecuritypurchases.Inaddition,theOpenMarketDeskwillcontinuetoofferlarge-scaleovernightandtermrepurchaseagreementoperations.TheCommitteewillcontinuetocloselymonitormarketconditions, andwillassesstheappropriatepaceofitssecuritiespurchasesatfuturemeetings.

Inconnectionwiththeseplans,theCommitteevotedunanimouslytoauthorizeanddirecttheFederalReserveBankofNewYork,untilinstructedotherwise,toexecutetransactionsintheSystemOpenMarketAccountinaccordancewiththefollowingdomesticpolicydirective:

As of March 23, 2020, the FOMC instructed the open market trading sector to conduct the necessary open market operations to maintain the federal funds rate within the target range of 0% to 0.25%. The Committee directed the Department to increase the openness of the system to support the smooth operation of the Treasury and agency MBS markets, and the market account holdings of treasury and mortgage-backed securities (MBS) required. The Commission also directed the Department to purchase agency commercial mortgage-backed securities, including purchases of mortgage-backed securities at its agents.

EffectiveMarch23,2020, theFederalOpenMarketCommitteedirectstheDesktoundertakeopenmarketoperationsasnecessarytomaintainthefederalfundsrateinatargetrangeof0to1/4percent.TheCommitteedirectstheDesktoincreasetheSystemOpenMarketAccountholdingsofTreasurysecuritiesandagencymortgage-backedsecurities(MBS)intheamountsneededtosupportthesmoothfunctioningofmarketsforTreasurysecuritie sandagencyMBS.TheCommitteealsodirectstheDesktoincludepurchasesofagencycommercialmortgage-backedsecuritiesinitsagencymortgage-backedsecuritypurchases.

TheCommitteealsodirectstheDesktocontinueconductingtermandovernightrepurchaseagreementoperationstoensurethatthesupplyofreservesremainsampleandtosupportthesmoothfunctioningofshort-termU.S.dollarfundingmarkets.Inaddition, theCommitteedirectstheDesktoconductovernightreverserepurchaseoperations(andreverserepurchaseoperationswithmaturitiesofmorethanonedaywhennecessarytoaccommodateweekend,holiday,orsimilartradingconventions)atanofferingrateof0.00percent, inamountslimitedonlybythevalueofTreasurysecuritiesheldoutrightintheSystemOpenMarketAccountthatareavailableforsuchoperationsandbyaper-counterpartylimitof$30billionperday.

The Committee instructed the Department to continue auctioning the principal of all treasury bonds held by the Federal Reserve, and to reinvest all principal obtained from institutional debt and institutional mortgage-backed securities held by the Federal Reserve into institutional mortgages within each month. Minor deviations from these amounts are acceptable for operational reasons.

TheCommitteedirectstheDesktocontinuerollingoveratauctionallprincipalpaymentsfromtheFederalReservesholdingsofTreasurysecuritiesandtoreinvestallprincipalpaymentsfromtheFederalReservesholdingsofagencydebtandagencymortgage-backedsecuritiesreceivedduringeachcalendarmonthinagencymortgage-backedsecurities.Smalldeviationsfromtheseamountsforoperationalre asonsareacceptable.

The Commission also directed the Department to conduct the necessary dollar rolling and face to face swaps to facilitate the settlement of fed agency mortgage-backed securities transactions.

TheCommitteealsodirectstheDesktoengageindollarrollandcouponswaptransactionsasnecessarytofacilitatesettlementoftheFederalReservesagencymortgage-backedsecuritiestransactions.

2. The Federal Reserve announced a wide range of new measures to support the economy

FederalReserveannouncesextensivenewmeasurestosupporttheeconomy

The Federal Reserve is committed to using its full range of tools to provide overall support for families, businesses and the U.S. economy during this challenging period. The coronavirus pandemic has caused great difficulties in the United States and around the world. Our countrys top priority is to take care of the victims and limit the further spread of the virus. Although there is still a lot of uncertainty, it is clear that our economy will face serious damage. Active efforts must be made by the public and private sectors to reduce the loss of work and income and to promote rapid economic recovery after the epidemic has been eliminated.

TheFederalReserveiscommittedtousingitsfullrangeoftoolstosupporthouseholds,businesses,andtheU.S.economyoverallinthischallengingtime.ThecoronaviruspandemiciscausingtremendoushardshipacrosstheUnitedStatesandaroundtheworld.Ournationsfirstpriorityistocareforthoseafflictedandtolimitthefurtherspreadofthevirus.Whilegreatuncertaintyremains, ithasbecomeclearthatoureconomywillfaceseveredisruptions.Aggressiveeffortsmustbetakenacrossthepublicandprivatesectorstolimitthelossestojobsandincomesandtopromoteaswiftrecoveryoncethedisruptionsabate.

The Feds role is guided by congressional mandates to promote maximum employment and stable prices, as well as the stability of the financial system. To support these goals, the Fed is using its full authority to provide strong support for the flow of credit to American households and businesses. These actions include:

TheFederalReservesroleisguidedbyitsmandatefromCongresstopromotemaximumemploymentandstableprices,alongwithitsresponsibilitiestopromotethestabilityofthefinancialsystem.Insupportofthesegoals,theFederalReserveisusingitsfullrangeofauthoritiestoprovidepowerfulsupportfortheflowofcredittoAmericanfamiliesandbusinesses.Theseactionsinclude:

Supportforcriticalmarketfunctioning.TheFederalOpenMarketCommittee(FOMC)willpurchaseTreasurysecuritiesandagencymortgage-backedsecuritiesintheamountsneededtosupportsmoothmarketfunctioningandeffectivetransmissionofmonetarypolicytobroaderfinancialconditionsandtheeconomy.TheFOMChadpreviouslyannounceditwouldpurchaseatleast$500billionofTreasurysecurities andatleast$200billionofmortgage-backedsecurities.Inaddition,theFOMCwillincludepurchasesofagencycommercialmortgage-backedsecuritiesinitsagencymortgage-backedsecuritypurchases.

2. By creating new programs to support the flow of credit to employers, consumers and businesses, these programs add up to $300 billion in new financing. The Ministry of finance will use the exchange stabilization fund (ESF) to provide $30 billion in principal to the mechanism.

3. Establish two types of primary market corporate credit facilities (pmccf) to support the provision of credit to large enterprises - for the issuance of new bonds and loan guarantees, and secondary market corporate credit facilities (smccf) to provide liquidity for outstanding corporate bonds.

Establishmentoftwofacilitiestosupportcredittolargeemployersu2013thePrimaryMarketCorporateCreditFacility(PMCCF)fornewbondandloanissuanceandtheSecondaryMarketCorporateCreditFacility(SMCCF)toprovideliquidityforoutstandingcorporatebonds.

4. Establish a term asset-backed securities lending facility (TALF) to support the flow of credit to consumers and businesses. TALF will allow the issuance of student loans, auto loans, credit card loans, SBA guaranteed loans, and other asset-specific mortgage-backed securities (ABS)

Establishmentofathirdfacility,theTermAsset-BackedSecuritiesLoanFacility(TALF),tosupporttheflowofcredittoconsumersandbusinesses.TheTALFwillenabletheissuanceofasset-backedsecurities(ABS)backedbystudentloans,autoloans,creditcardloans,loansguaranteedbytheSmallBusinessAdministration(SBA),andcertainotherassets.

5. To facilitate credit flows by expanding the mmlf to include more types of securities, including municipal bond variable rate Demand Notes (vrdn) and bank certificates of deposit, to facilitate the flow of credit to municipal bonds.

FacilitatingtheflowofcredittomunicipalitiesbyexpandingtheMoneyMarketMutualFundLiquidityFacility(MMLF)toincludeawiderrangeofsecurities,includingmunicipalvariableratedemandnotes(VRDNs)andbankcertificatesofdeposit.

6. By expanding the commercial paper financing facility (CPFF), the Federal Reserve has expanded the scope of commercial paper financing facility, and high-grade and tax-free commercial paper has also been included in the qualified securities. The interest rate of this financing facility has been reduced before.

FacilitatingtheflowofcredittomunicipalitiesbyexpandingtheCommercialPaperFundingFacility(CPFF)toincludehigh-quality,tax-exemptcommercialpaperaseligiblesecurities.Inaddition,thepricingofthefacilityhasbeenreduced.

In addition to the above steps, the Federal Reserve is expected to announce the establishment of a Street commercial loan program to support loans to eligible SMEs to complement SBA efforts.

Pmccf will allow companies access to credit so that they can better maintain business operations and capabilities during the outbreak. The measure is open to investment grade companies and will provide four years of transitional financing. Borrowers can choose to defer interest and principal payments for the first six months of the loan, which can be extended at the discretion of the Federal Reserve, so that more cash is available to pay employees and suppliers wages. The Federal Reserve will fund special purpose vehicles (SPVs) to lend to companies from the pmccf. The Ministry of finance will use ESF to make equity investment in SPV.

ThePMCCFwillallowcompaniesaccesstocreditsothattheyarebetterabletomaintainbusinessoperationsandcapacityduringtheperiodofdislocationsrelatedtothepandemic.Thisfacilityisopentoinvestmentgradecompaniesandwillprovidebridgefinancingoffouryears.Borrowersmayelecttodeferinterestandprincipalpaymentsduringthefirstsixmonthsoftheloan, extendableattheFederalReservesdiscretion,inordertohaveadditionalcashonhandthatcanbeusedtopayemployeesandsuppliers.TheFederalReservewillfinanceaspecialpurposevehicle(SPV)tomakeloansfromthePMCCFtocompanies.TheTreasury,usingtheESF,willmakeanequityinvestmentintheSPV.

Smccf will purchase corporate bonds issued by investment grade US companies and exchange traded funds listed in the US on the secondary market, whose investment goal is to provide broad market exposure for US investment grade corporate bonds. The Treasury will use the ESF to make equity investments in SPVs established by the Federal Reserve for this measure.

TheSMCCFwillpurchaseinthesecondarymarketcorporatebondsissuedbyinvestmentgradeU.S.companiesandU.S.-listedexchange-tradedfundswhoseinvestmentobjectiveistoprovidebroadexposuretothemarketforU.S.investmentgradecorporatebonds.Treasury,usingtheESF,willmakeanequityinvestmentintheSPVestablishedbytheFederalReserveforthisfacility.

According to TALF, the Fed will unconditionally lend to certain AAA rated ABS holders, backed by recently issued consumer and small business loans. The Fed will lend an amount equal to the market value of ABS less the deduction and will always be guaranteed by ABS. The Treasury will also use the ESF to make equity investments in the SPV established by the Federal Reserve for this purpose. TALF, pmccf and smccf are established by the Federal Reserve under the authority of section 13, paragraph 3.

UndertheTALF,theFederalReservewilllendonanon-recoursebasistoholdersofcertainAAA-ratedABSbackedbynewlyandrecentlyoriginatedconsumerandsmallbusinessloans.TheFederalReservewilllendanamountequaltothemarketvalueoftheABSlessahaircutandwillbesecuredatalltimesbytheABS.Treasury,usingtheESF, willalsomakeanequityinvestmentintheSPVestablishedbytheFederalReserveforthisfacility.TheTALF,PMCCFandSMCCFareestablishedbytheFederalReserveundertheauthorityofSection13(3)oftheFederalReserveAct,withapprovaloftheTreasurySecretary.

TheseactionsaugmentthemeasurestakenbytheFederalReserveoverthepastweektosupporttheflowofcredittohouseholdsandbusinesses.Theseinclude:TheestablishmentoftheCPFF,theMMLF,andthePrimaryDealerCreditFacility;Theexpansionofcentralbankliquidityswaplines; Extended reading Chen Yongwei: the total duration of the epidemic may not be short. We need to prepare for a long-term battle. Professor Zhang Fan, Peking University: increase liquidity and prevent inflation. Ba Shusong: the central bank can consider reducing the targeted standards for small and medium banks. Source: responsible editor of Netease Research Bureau: Li Zhaoyuan u00b7 b7890

TheseactionsaugmentthemeasurestakenbytheFederalReserveoverthepastweektosupporttheflowofcredittohouseholdsandbusinesses.Theseinclude:

TheestablishmentoftheCPFF,theMMLF,andthePrimaryDealerCreditFacility;

Theexpansionofcentralbankliquidityswaplines;