Abu Dhabi, UAEThursday 9 July 2020

Fed rolls out $2.3tn in aid as 6.6 million more Americans lose their jobs

Nearly 17 million US workers, or 10% of the labour force, have filed for unemployment since mid-March

A woman collects unemployment forms at a drive-thru collection point in Florida. Another 6.6 million US workers filed for unemployment benefits for the week ending April 4. Photo: AFP
A woman collects unemployment forms at a drive-thru collection point in Florida. Another 6.6 million US workers filed for unemployment benefits for the week ending April 4. Photo: AFP

The US Federal Reserve on Thursday rolled out a broad, $2.3 trillion (Dh8.4tn) effort to bolster local governments and small and midsized businesses in its latest move to keep the economy intact as the country battles the coronavirus pandemic.

The Fed said it would work through banks to offer four-year loans to companies of up to 10,000 employees and directly buy the bonds of states and more populous counties and cities to help them respond to the health crisis.

In announcing what may prove its most groundbreaking step in the crisis fight, Fed chairman Jerome Powell said the central bank’s role had now broadened beyond its usual focus in keeping markets "liquid" and functioning, to helping the US get the economic and financial space it needs to fix a dire health emergency.

“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” Mr Powell said in a statement released on Thursday. “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.”

Mr Powell is scheduled to make separate comments at 10am EST (6pm Dubai time).

Meanwhile, data released by the US Labour Department on Thursday showed that more Americans applied for unemployment benefits in massive numbers for a third straight week, bringing the three-week total to almost 17 million during the virus shutdown.

First-time claims for jobless benefits hit 6.6 million in the week ending April 4, a slight decrease from the previous week's count of 6.9 million, which was 219,000 more than the original tally, according to the report.

The Bloomberg dollar index dropped while US stock futures pared their declines after the simultaneous announcement of the Fed’s new facilities and jobless claims data.

The Fed laid out details of the heavily anticipated Main Street Lending Facility, which will “ensure credit flows to small and midsized businesses with the purchase of up to $600 billion in loans”. Eligible borrowers can have up to 10,000 employees or up to $2.5bn in annual revenue. Loan sizes will range from $1 million to $150m.

Borrowers will be subject to restrictions imposed by Congress in the Cares Act on employee retention, distribution of dividends and other factors. The programme will be backstopped by $75bn from the Treasury to absorb losses. Banks that handle the loans will be required to retain a 5 per cent interest in each loan, with the facility purchasing the remainder.

A Municipal Liquidity Facility will offer as much as $500bn in lending to states and municipalities, by directly purchasing that amount of short-term notes from states as well as large counties and cities.

The Primary and Secondary Market Corporate Credit Facilities and the Term Asset-Backed Securities Loan Facility will be expanded in size and scope to support as much as $850bn in credit.

The Fed also said it will continue to closely monitor conditions in the primary and secondary markets for municipal securities and will evaluate whether additional measures are needed to support the flow of credit and liquidity to state and local governments.

Updated: April 9, 2020 05:29 PM

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