Fed Expands Repo to $1 Trillion Per Day to Avert Liquidity Crunch

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington on March 21, 2018. Alex Wong/Getty Images

The Federal Reserve has expanded its short-term lending program, known as repo, to $1 trillion, and extended it by a month.

The Federal Reserve Bank of New York said in a statement that it will supply the funds in two $500 billion operations—one in the morning and one in the afternoon—each business day, until April 13.

While bank demand for repo funding has been low and stable this week, the Fed’s decision signals it stands ready to provide liquidity to keep markets from seizing up amid the COVID-19 crisis.

The Epoch Times refers to the novel coronavirus, the pathogen that causes the disease COVID-19, as the CCP virus because of the Chinese Communist Party’s coverup and mismanagement of the outbreak, which allowed the virus to spread across China and become a global pandemic.

Medical workers in overalls stretch a patient under intensive care into the newly built temporary hospital to fight the new coronavirus at the Gemelli hospital in Rome, Italy, on March 16, 2020. Andreas Solaro /AFP via Getty Images

The move follows a directive by the Federal Open Market Committee (FOMC), the central bank’s monetary policy executive, to expand repo “to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term U.S. dollar funding markets.”

The Fed has been in crisis management mode amid the outbreak, slashing rates to zero and deploying a range of tools to fight recession and to avert a global financial meltdown as COVID-19 lockdowns weigh on economies and rattle investors.

“Measures taken to flatten the virus spread curve (so as not to overwhelm healthcare systems) are creating extreme short-term economic strain,” said senior financial analyst Nick Reece in an emailed statement.

“And that’s putting a lot of stress on the global financial system,” Reece told The Epoch Times. “Financial conditions will be the primary concern of the Fed over the next several weeks,” he said.

Traders work on the floor of the New York Stock Exchange in New York on March 20, 2020. Reuters/Lucas Jackson

In a sign of continued market instability, all three major Wall Street indexes on Friday registered their biggest weekly declines since the depths of the 2008 financial crisis. Stay-at-home stocks were the only ones to thrive on expectations that millions of people would spend weeks or longer cooped up at home.

Earlier in the week, the Fed extended swap line provisions temporarily to central banks in nine additional countries to ease access to dollars.

Dollars have been in huge demand—and tight supply—in markets outside U.S. borders as banks, companies, and governments scramble to secure them to service the dollar-denominated debts many have accumulated.

With the greenback serving as the world’s reserve currency, a big proportion of offshore debt is issued in dollars.

“The foreign swap lines are critical because of the 11 trillion in U.S. dollar debt outstanding that is issued by non-banks outside the U.S.,” Reece explained. “Take up on the swap lines is likely to be significant,” he predicted.

“Also, we may see increased coordination between the Fed, Treasury, and Congress as policymakers work to minimize the economic damage of this exogenous shock. I expect that policymakers will act aggressively,” he added.

‘Now, It’s Serious’

President Donald Trump met with tourism executives at the White House on Tuesday, where industry leaders described their businesses being decimated by the virus.

One executive told Trump the virus-related travel bans could wipe out hundreds of billions in travel spending and lead to millions of job losses.

“The numbers are $355 billion is what we’re going to lose, 4.6 million employees will be out of work, and we’re predicting unemployment will go to 6.3 percent,” U.S. Travel Association CEO Roger Dow told Trump.

“So, it’s now—it’s serious,” Dow said.

A Military Emergency Unit member disinfects Nuevos Ministerios metro station in Madrid, Spain, on March 20, 2020. Reuters/Javier Barbancho

“We literally had the strongest economy on earth,” Trump said at the meeting.

“Unbelievable,” Trump said, noting that more than 124 countries have been impacted by the CCP virus.

“We know your industries are among the hardest hit,” Trump told the executives. “We are going to come out stronger than ever before.”

President Donald Trump leads a meeting with travel and tourism industry executives to discuss economic response to the COVID-19 outbreak in the Cabinet Room of the White House in Washington, on March 17, 2020. Drew Angerer/Getty Images

Asked by a journalist at a Thursday briefing, about whether the administration was prepared to see a big spike in unemployment, Trump said the terrible job numbers would be a “worst-case scenario,” stressing that he expects when the crisis is over, the economy will surge.

“If we can get this thing wrapped up and finished earlier, things will go very nicely,” Trump said. “And one of the things they’re working—as you know, one of the elements that is being worked on very much so on the Hill is to keep the jobs going so that when we do get rid of the virus, we’re going to be able to just really, I think, go like a rocket.”

“When this is defeated—this hidden scourge is defeated—I think we’re going to go up very rapidly,” the president said, adding, “back to where it was and beyond.”

Members of Trump’s economic team were convening Friday on Capitol Hill to launch negotiations with Senate Republicans and Democrats racing to draft a $1 trillion-plus economic rescue package.

“We hope to see the Congress act on that early next week,” Vice President Mike Pence said during an afternoon press conference.

The rescue package is the biggest effort yet to shore up households and the U.S. economy amid the pandemic.

“Americans from every walk of life are coming together,” Trump told reporters at the Friday briefing. “We are winning and we are going to win this war.”