The Federal Reserve announced more plans which would attempt to buoy the economy and keep it afloat while Americans stay safe at home due to the COVID-19 outbreak. The Fed Chairman, Jerome Powell, explained: “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.” The Fed is moving beyond adding liquidity to make sure markets operate efficiently to helping bridge the gap until the economy recovers.
In its new plans, the Fed expanded its loans to small and midsize businesses as well as municipalities. In addition, they will broaden their purchases to some high-yield bonds and commercial mortgage-backed securities. The loan program, termed the “main street lending facility,” would allow these smaller businesses to pay between 2.5% to 4% above their short-term lending rate, which is zero. The loans would be for four years and include one year of deferred interest and principal. In addition to the expanded lending program, the Fed opened the door to buy fallen angels, which are investment-grade bonds that fell in credit quality to below investment-grade, otherwise known as junk bonds. The Fed is still closely monitoring the municipal bond market, so they also may be on the table down the road.
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Commentaries are published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.
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