Federal Reserve Update March 23, 2020
The Federal Reserve (‘the Fed”) just announced sweeping new measures to support households, business, and the US economy in these challenging times all in an effort to limit the losses to jobs and incomes and to promote a swift recovery once these disruptions abate.
- A vicious cycle is underway: Fearful investors sell assets to raise cash, which drives down the prices of those assets, which spurs more fear and desire to hoard cash. That, in turn, has caused credit to dry up, or to be available only at soaring costs, for nearly everyone: corporations, small businesses, state and local governments, and people seeking a mortgage loans.
- This morning the Fed signaled that it will buy Treasury bonds and mortgage-related securities in whatever quantities are needed in order to make the financial markets function more like usual. In the last three weeks, financial markets have frozen up as all sorts of investors hoard cash and dump every other type of security. This has put a real strain on the amount of cash in our economic system.
- The Fed’s decision to purchase treasuries and mortgage-backed securities in any amount necessary should have a positive impact on the housing market. This decision means that the US Government will buy mortgage-backed securities going forward so banks can unload these mortgages to the government and can continue to originate new mortgages for those looking to buy. The goal is to ensure that banks keep lending and providing financing to these borrowers.
- Coupled with the lower interest rates, the Fed is hoping that these new measures will create a positive environment for buyers and sellers.
For more information or to read the full article from The Fed, visit their website here.