Mar 24, 2020 - Economy & Business

The Fed goes to war with coronavirus

Photo illustration: Sarah Grillo/Axios. Photo: Scott Olson/Getty Images

While President Trump has waffled on coronavirus and the Senate and House of Representatives have bickered over how best to deploy a fiscal response, the Federal Reserve has unleashed an onslaught of monetary policy power.

What happened: Having fired the full arsenal it deployed during the 2007–2009 global financial crisis in a matter of weeks, the Fed has committed to trillions in buying. And, it now promises unlimited purchases of U.S. government debt and mortgage-backed securities as well as municipal and corporate bond buys.

Why it matters: Central banks had surpassed the traditional confines of monetary policy long before the virus outbreak.

  • The Fed's already unprecedented action is far from finished and the world will now get to see just how much central banks can do to help the economy.

Where it stands: "The Fed knows they need to be aggressive, need to be creative and need to do everything in their power to keep the economy going through this really difficult time," Michelle Meyer, head of U.S. economics at Bank of America, tells Axios.

  • Meyer points out that even with the Fed's balance sheet at a record $4.7 trillion as of March 18, that is still less than 25% of U.S. GDP. The Bank of Japan, by contrast, holds assets worth more than 100% of the country's GDP on its balance sheet, including corporate bonds and ETFs.
  • "So there’s capacity to buy," she adds.

The big picture: Having already stepped in for the country's politicians, the Fed on Monday greenlit vehicles to provide aid to employers, municipalities and households, and is expected to soon announce a Main Street Business Lending Program for small and medium-sized businesses.

  • "This is another essential step forward in providing a floor for risk markets but, unfortunately, it is not sufficient,” Seema Shah, chief strategist at Principal Global Investors, says in a note to clients.

Reality check: "The Fed is acting as the plumber," Oxford Economics' chief U.S. economist Gregory Daco tells Axios. "It’s ensuring the pipes don’t burst, but there is little it can do to control the water pressure."

Go deeper: Coronavirus has left us with nothing good to say about the economy

Go deeper

The Fed's $1.5 trillion injection may be just the beginning

Data:; Chart: Axios Visuals

The Fed's actions on Thursday appear to have had a significant impact on the bond market and the currency market, where the dollar has reversed its slide against most major currencies after touching monthslong lows earlier this week.

The state of play: The dollar index, which measures the greenback's value against six global peers like the euro and Japanese yen, rose 1% Thursday.

Goldman Sachs expects a full percentage point of rate cuts from the Fed

Fed Chairman Jerome Powell. Photo: Sarah Silbiger/Getty Images

Fed chair Jerome Powell's statement on Friday afternoon that the U.S. central bank was "closely monitoring developments" and would "act as appropriate to support the economy" has eliminated any doubt that the Fed will cut U.S. interest rates at its meeting on March 17–18.

What we're hearing: "A Fed cut in March appears nearly certain," analysts at Goldman Sachs said in a late Sunday note to clients.

Fed unveils aggressive measures to shore up economy

Photo by Mark Makela/Getty Images

The Federal Reserve announced a broad slate of programs to make sure credit flows to businesses and consumers as coronavirus safety measures cripple the economy.

Why it matters: The Fed’s announcement early Monday is the most aggressive step so far this year — and the markets responded in kind, with futures rising steeply ahead of the market's open.