Topic: An examination of the Federal Reserve’s ongoing monetary policy responses to the disruptions in financial markets caused by the Covid19 outbreak.

Federal Reserve’s Ongoing Monetary Policy Responses to Covid19 Outbreak
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April 27, 2020
Market Targeting Policies
Due to Federal policies that require social distancing measures and lockdowns, both private industries and public institutions in the United States have experienced significant declines in profitability, with some believing that it could lead once again to another recession. Accordingly, the market targeting policies implemented by the Federal Reserve (Fed) have been designed to be in line with the national goal of buffering these effects and making sure that the country can quickly recover after the outbreak.
As aptly stated by the Federal Reserve Board Chair Jerome H. Powell, the main aim of the current policies being implemented by the Federal Reserve is “to provide as much relief and stability as much as [it] can during this period of constrained economic activity” CITATION Che20 \l 1033 (Cheng, Skidmore, & Wessel, 2020). To do this, the Fed has decided to focus on Commercial Paper Market as compared to the Corporate Bond Market. Nevertheless, it also implemented different market targeting policies to improve capital liquidity in the economy. The subsequent sections would discuss some of the policies implemented in response to the Covid-19 Pandemic.
Issuance of New Corporate Bonds and Liquidity Injections
Despite its focus on the commercial paper market, the Fed has created two new facilities that would aid in increasing cash flow in the economy while also encouraging the people to invest in new kinds of investment platforms. On the one hand, the current monetary policy relating to the Fed’s focus on corporate bonds has led to its creation of the Primary Market Corporate Credit Facility (PMCCF). This new facility is utilized as a Special Purpose Vehicle (SPV) that helps “maintain the flow of credit to large employers,” who are severely affected by the pandemic.
Specifically, this particular SPV is designed to issue loans with a 4-year maturity period to different investment corporations in the United States. The additional period is also provided in light of the current economic circumstances, which extends up to 6 additional months after the original maturity date.
On the other hand, the Fed has also created the Secondary Market Corporate Facility (SMCCF) as an SPV “will purchase U.S. investment-grade corporate bonds and bond ETFs in the secondary market” CITATION Kol20 \l 1033 (Kolakowski, 2020). Its ultimate goal is to provide enough liquidity in the market to encourage financial lending institutions further to provide loans to corporations, which should support the need to increase capital flow in the market.
Ultimately, the Fed stated that this focus on the issuance of new corporate bonds and loans is the increase of capital that corporations could utilize to support their workforce. This is important, especially considering that lack of capital could induce gradual layoffs, which could further worsen the economy and increase the time needed for ...