Updated Apr 9, 2020 - Economy & Business

Fed will lend up to $2.3 trillion amid coronavirus crisis

Fed Chairman Jerome Powell at a press conference in March. Photo: Eric Baradat/AFP via Getty Images

The Federal Reserve announced Thursday that it will support the coronavirus-hit economy with up to $2.3 trillion in loans to businesses, state and city governments — made possible in part by Treasury funds set aside in the government stimulus package.

Why it matters: It adds to the number of huge, unprecedented steps the Fed has taken during the coronavirus outbreak to blunt the effects of the resulting economic shutdown. Its actions to date are bigger than any seen during other crises in U.S. history.

The fresh Fed programs include financial support for:

  • Businesses: The Fed's Main Street Lending Program will allow for $600 billion in loans — provided through banks — to companies with as many as 10,000 workers but under $2.5 billion in revenue last year. The terms of these loans may not be as appealing as those offered under the Paycheck Protection Program (PPP) for smaller businesses (with under 500 workers), though smaller companies are still eligible. The program is expected to launch in coming weeks.
  • State and municipalities: A Fed facility will buy as much as $500 billion of short-term debt from certain states, cities and counties — a measure meant to shore up municipalities that are seeing revenues slide.

Of note: The Fed also announced a separate facility specifically for the banks handing out PPP loans to struggling mom-and-pop businesses — and it hinted that it might open up that facility to nontraditional lenders.

The Fed also broadened previously announced backstop programs to include riskier debt. The facilities are meant to support critical funding markets for big businesses that have taken a hit as a result of the coronavirus.

The backdrop: The slew of new Fed programs comes as economic conditions deteriorate at an unprecedented pace.

  • This morning, another 6.6 million Americans filed for unemployment benefits this week, adding to the whopping 10 million who have filed jobless claims in recent weeks.

Between the lines: The Fed is limited in its ability to provide direct relief — it leaves that to Congress — but it uses Treasury Department funds to support key markets, insuring against losses.

What they're saying: "Our actions today will help ensure that the eventual [economic] recovery is as vigorous as possible," Fed Chair Jerome Powell said in a press release.

  • Powell said in a webcast interview with the Brooking Institution's David Wessel on Thursday morning that it's time to talk about a plan for reopening the economy, so as to avoid a "false start."

Go deeper

PPP failed to get money to industries and areas most in need

Data: U.S. Small Business Administration; Chart: Naema Ahmed/Axios

The Paycheck Protection Program (PPP) "appears to have missed the mark," S&P Global chief economist Beth Ann Bovino writes in a research report to be released today.

What it means: The PPP's first round largely skipped over states and industries that were the most in need, while the second round still has 39% of allocated cash remaining, even as many businesses are at risk of permanent closure.

U.S. coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios. This graphic includes "probable deaths" that New York City began reporting on April 14.

About 40.7 million Americans have filed for unemployment since the coronavirus pandemic began, including 2.1 million more claims filed from last week.

Why it matters: Even as states reopen their economies, Americans are still seeking relief. Revised data out Thursday also showed U.S. economy shrunk by an annualized 5% in the first quarter — worse than the initially estimate of 4.8%.

D.C. chef: Restaurants need more time to spend PPP money

Photo: Axios screenshot

Restaurants need more time to spend money they've received from the federal government's Paycheck Protection Program to ensure that the loans are forgivable, Kwame Onwuachi, owner and head chef of Kith and Kin, a D.C.-based restaurant, said during an Axios digital event.

Why it matters: Onwuachi said small restaurants are reaching the end of the eight-week time limit to spend the money. If they do not spend the money, the loans may not be forgiven.