Fed Programs Could Inject $2.3 Trillion Into the Economy

The Fed’s efforts to pump new money into the financial markets so far have helped improve tense trading conditions, especially in areas of the bond markets that are considered the safest for investors, where its early programs focused.

But conditions in riskier credit markets — which companies with shaky businesses or more onerous loads of debt rely on to constantly refinance their obligations — had seen relatively little improvement.

Borrowing has become comparatively expensive for companies with risky debt. That reduces the chances that such businesses, wobbly in the best of times, will survive what looks like the steepest economic downturn since the Great Depression.

The Fed may help to soften the sharp cutoff between investment grade and junk status, but its expansion efforts will be limited. Under one program, American Airlines and United Airlines would not be able to sell their bonds or loans to the Fed because their ratings were below investment grade before the Fed’s cutoff date. Southwest Airlines would qualify, because it is still rated investment grade. Delta, even though it was recently downgraded by Moody’s, would be included.

“It’s not like the door is open to every piece of junk in the world — far from it,” said Julia Coronado, founder of MacroPolicy Perspectives. “It looks shocking, but I think there’s definitely still credit-checking, and quality standards.”

The central bank did hint at its own limits on Thursday, even as it redoubled its efforts. Some lawmakers, including House Speaker Nancy Pelosi, a Democrat, have been urging the central bank to “think big,” while others have worried that the funding going to the Fed would be used to “bail out” big companies.

Mr. Powell emphasized that the Fed cannot actually distribute money, just enable loans.

“These are lending powers, not spending powers,” Mr. Powell said. “The Fed is not authorized to grant money to particular beneficiaries.”

Jim Tankersley, Peter Eavis, Emily Flitter and Matt Phillips contributed reporting.

Source Article