No limit to Fed money injections

The Federal Reserve pledged to buy bonds in unlimited quantities on Monday while allocating at least $ 300 billion on new emergency loan programs.

These steps were taken in response to Wall Street's new forecasts for a sharp drop in economic output due to coronavirus-related blockages, business disruptions and job losses.

"The coronavirus pandemic is causing enormous suffering in the United States and around the world," said the central bank in a statement on its website. "Huge efforts must be made in all public and private sectors to limit job and income losses and promote rapid recovery once the disruptions have subsided."

The response of the markets

The Fed's new liquidity injections indicate a willingness to go beyond the already significant steps taken in the past few weeks to prevent traditional Wall Street equity and bond markets from panicking.

The latest U.S. announcement came after overnight trading in Asian markets and futures contracts indicated that the S&P 500 index was headed for another sharp drop.

Investor confidence was further eroded by the inability of US lawmakers to reach an agreement late Sunday on a $ 1.8 trillion proposed aid package. However, even after the latest Fed support action, the S&P 500 fell approximately 2.8% in the early hours of Monday.

Bitcoin (BTC), seen by some cryptocurrency investors as a hedge against central bank money press inflationary pressures, rose 7.3% to a price of $ 6,272 starting at 13:31 UTC (9:31 in New York). This move reduced the bitcoin loss since the beginning of the year to 13%, less than half the 31% loss of the S&P 500.

New credit lines

A new corporate credit instrument for the primary market, or PMCCF, will be established to help finance new bond and loan issues. A corporate credit mechanism on the secondary market will provide liquidity for outstanding corporate bonds.

"The PMCCF will allow companies to access credit so that they can better manage their businesses and business skills during the period of pandemic-related difficulties," said the central bank.

The program will provide four-year loans and borrowers will be able to defer interest and principal payments over the first six months, which can be extended at the discretion of the Fed. The Fed added that it will "soon" establish a Main Street business loan program to support loans to small and medium-sized enterprises.

The Fed's monetary policy committee, composed of presidential nominees and a selection of top executives from regional central bank branches, is set up as an independent governmental entity with so-called lender of last resort powers.

This means that it has the means to provide freshly printed money to banks when other sources of funding run out.