The Fed said it could supply the economy with $2.3 trillion. It hasn’t come close so far – By Jeff Cox (CNBC) / June 24 2020
- The Fed in March unveiled lending programs it said could provide $2.3 trillion to the economy. So far, that has totaled just $143 billion, or 6.2% of the total firepower.
- There are several likely explanations for why what was supposed to be an infusion of cash into the economy instead has been a comparative trickle.
- The programs, particularly the Main Street lending initiative, are complicated. There also may be less of a need as the economy improves.
- “There are also early signs that demand for the new facilities has been relatively muted, perhaps because the terms on offer have proved relatively unattractive,” said economist Andrew Hunter of Capital Economics.
A pedestrian walks past the Federal Reserve building on Constitution Avenue in Washington on March 19, 2019.
Leah Millis | Reuters
When the coronavirus pandemic locked up capital markets and pulled the economy into recession, the Federal Reserve took aim with a $2.3 trillion bazooka to try to help. Thus far, though, the central bank has only fired off surprisingly few rounds.
In the three months since a slew of programs were announced, the Fed has loaned out just $143 billion, or a mere 6.2% of its total firepower. The most ambitious initiative, the Main Street Lending Program, has yet to make a loan, according to the most recent Fed balance sheet data, though officials expect that to change in a matter of days.
As for the rest of the measures, from municipal lending to corporate credit to the Fed’s role in the Paycheck Protection Program, there are several likely explanations for why what was supposed to be an infusion of cash into the economy instead has been a comparative trickle.
One is simply that the programs, particularly in the case of Main Street, are complicated and have proven difficult to launch as the Fed gathers feedback and works through logistics. Another is that there is simply less demand from entities that are finding other ways to make do. And on that same point, the notion that the U.S. economy is recovering more quickly than expected from a recession that began in February has negated the need for the arsenal that the Fed launched starting in March.
“The economy is getting better, so you’re not seeing as many firms short of cash as you’d seen in March and April,” said Yiming Ma, an assistant finance professor at Columbia University Business School. “Some of the terms are just not very attractive to firms who potentially do need the funds.”
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