New York Fed Reserve to infuse $1.5 trillion Dollars to Revive the Drowning Economy
Amid the coronavirus pandemic, the New York Fed Reserve is taking gigantic steps to grow the confidence among the investors. On Thursday, the NY Fed declared that it would perform an open market operation by injecting a minimum of $1.5 trillion into the financial system. The Feds will also begin purchasing treasuries from the market.
Such a great and dramatic move is first after the infamous 2008 crisis. This type of move by the feds is called a term called Quantitative Easing (QE). Fed said this move would address the major and unusual depression in the market linked to the coronavirus.
While addressing CNBC, James Blanco, Bianco Research, said, “The Fed is all in. They’ve fired their nuclear weapon. and they did it because financial markets are seizing up,” He added, “There is no liquidity in the markets. They are trying to unstick them.”
It must be noted that the US treasuries market is considered the safest instrument on the markets, but the liquidity in these bonds has shrunk quite unusually over the past few weeks. It is like Feds are trying to oil up an old and large machine to run back smoothly and get on track.
THE FEDS MOVE’S MOTIVE
On Thursday, the feds also said that they will offer at least $500 in a repo operation for three months: and then the same thing the next day. Moreover, the feds also said they will infuse $500 one month repo operation on Friday as well.
This move did improve the sentiments in Wall Street, but the support was certainly not long enough as the markets are still in a suitable position to end on historically worst week since the mortgage crisis in 2008.
As per Ian Shepherdson, chief economic at pantheon Macroeconomics, “This is a full-blown crisis response operation, intended to make it abundantly clear that the Fed will not allow liquidity to dry up,”
A BROAD MOVE
The fed has previously continued ramping up cash this week to make sure the banks are not short of liquidity, and the operations of lending to the corporate are running smoothly despite the coronavirus fears.
Looking back at the 2008 crisis, banks stopped inter-bank and corporate lending to add to the liquidity crunch. Learning from this experience, Feds have been extra careful to make sure the companies aren’t afraid that the banks would refuse to provide them liquidity.
Feds had been continuously buying short term treasury called the T-Bills before Thursday, which has stopped since this Thursday. The T-Bills’ purpose is to provide overnight lending funds to the banks. The New York Fed Reserve intervention in the market has been going on continuously since September 2020.
The investors previously saw this move as a stealth QE, but the feds were quick to clarify that the step was strictly for providing short term debts.