Updated Mar 18, 2020 - Economy & Business

Fed says it will help business-funding market amid coronavirus outbreak

Jerome Powell. Photo: Mark Makela/Getty Images

The Federal Reserve said Tuesday it would intervene in a key market used by cash-strapped businesses for the first time since the financial crisis — a move intended to help corporations hurt by the coronavirus outbreak.

Why it matters: This market froze up in recent weeks, limiting businesses' ability to borrow at a time when the halt in economic activity is weighing on American corporations. It's the latest in a series of moves by the Fed to step in and ease that pain.

What they're saying: The Fed is providing a backstop for the so-called commercial paper market, which is looked to for financing "a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies," the Fed notes.

  • "[I]f you don’t get this short-term borrowing, you can’t get payments out, you can’t pay your employees, you can’t pay your customers,” Randy Kroszner, a former Fed official, told CNBC.

How it works: The Treasury Department, which had to approve the action, fronted $10 billion in credit protection to the Federal Reserve in connection with the program.

  • To unfreeze the market, the Fed said it would lend to commercial paper issuers at a rate of 2 percentage points above overnight lending rates.

The big picture: The Fed's action comes on the heels of the central bank lowering interest rates to near zero, flooding short-term funding markets with liquidity, and stepping up purchases of Treasuries and mortgage-backed securities — all in the name of fighting the economic harm that the coronavirus has brought.

  • The Fed also announced Tuesday night that it would restart yet another financial crisis-era measure to support credit markets. In exchange for broad types of collateral, the Fed will give short-term loans to financial institutions that buy a range of things, including corporate debt.

Go deeper

Fed cuts interest rates to near zero in emergency coronavirus intervention

Photo: Mark Makela/Getty Images

The Federal Reserve on Sunday cut its benchmark interest rate to almost zero and launched a $700 billion quantitative easing program in response to the expected economic downturn and stock market slump caused by the coronavirus.

Why it matters: This is the most drastic measure the Fed could take to try to shield the economy amid a global pandemic. The central bank hasn’t made moves this dramatic since the financial crisis.

Go deeperArrowUpdated Mar 15, 2020 - Economy & Business

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.

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

Data: Investing.com; 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.