Fed Injects Liquidity into Markets with $1.5 Trillion Easing Program

 

The Trump administration and US House Speaker Nancy Pelosi are reportedly near an agreement on a bill to curb the virus impact. President Trump’s speech on Wednesday did not contain specifics of a fiscal stimulus and failed to calm markets. Paid sick leave, increase in Medicaid funds, and better unemployment benefits are the some of the debated issues. With the global death toll topping 5,000, the US will ramp up testing for the virus with President Trump tweeting “All Red Tape has been cut, ready to go!” this morning. The FDA granted “emergency use authorization” to private company Roche Holding AG to distribute tests that provide faster results. Volatility continues into this morning as the market awaits President Trump’s announcement expected later today. Yesterday, US stocks had their worst day since 1987 – the DJIA falling as much as 10%. The 10-year Treasury yield has risen today and currently sits at 0.972%.

 

 

The NY Fed announced an emergency $1.5 trillion easing program. To increase liquidity in the financial system, the Fed has pledged to weekly repo purchases with a minimum size of $500 billion and shift their $60 billion in T-bill purchases to a wider range of maturities. The NY Fed made these short-term funding changes after Jerome Powell met with the FOMC. It is unclear how long these purchases will last and will likely be decided at the rate-setting FOMC meeting next week. Fed officials are consistent with the message that their actions are not a result of QE as these shifts are purely technical with an emphasis on resolving short-term balance sheet issues. Economists across the board from banks like Goldman Sachs and Barclays estimate that the Fed will move their benchmark rate down to 0% at the next meeting.

 

 

Day ahead. The consumer sentiment survey for March conducted by the University of Michigan dropped to 95.9 from 101 last month. This afternoon, President Trump will meet with industry executives to discuss his administration’s response to the outbreak.