PPPLF Extended, Beige Book Review, Auction Successful
PPPLF Extended, Beige Book Review, Auction Successful
On Monday, The Federal Reserve Board announced it will extend its Paycheck Protection Program Liquidity Facility (PPPLF) until June 20, 2021. The program, which intends to support employment levels by giving credit to businesses partially on the condition they retain employees, has been considered quite effective in its aims. One public relations problems of the program was that several larger companies were found to have taken the funds. Treasury Secretary Yellen approved the extension.
The Commercial Paper Funding Facility, the Money Market Mutual Fund Facility and the Primary Dealer Credit Facility have been pretty lightly used since Summer. They will expire as scheduled on March 31st. Hopefully we won’t need anything like them anytime soon!
The Federal Reserve has a lot more duties than monetary policy. They employ A LOT of economists, bank supervisors, and a lot of other talented professionals who often don’t get as much visibility but nonetheless produce some highly useful, and interesting research and writing. One important piece of research is the Beige Book, so named for its color. It is intended to characterize the changes in condition since the last report. There’s sophisticated and diverse collection methods implemented at the regional level. It’s also always not a bad call if you’re a small business owner to check out the section issued by your closest regional Fed. It’s a great resource to get the pulse of your local economy, although we pay attention to the National summary for our purposes.
The Beige Book found that economic activity expanded modestly since the last issuance. Most businesses have positive expectations of the next 6-12 months due to positive vaccine distribution developments. A few districts reported improvement in leisure, travel and tourism activity but overall this section of the economy remains significantly hindered by lockdowns and changed consumer behavior.
There are of course supply-chain challenges, but by and large manufacturing activity has picked up in most districts. A few districts noted declining loan volumes but overall banks reported declining delinquencies and elevated deposit levels. Robust demand for new and existing housing stock continues across districts. Commercial Real Estate conditions were seen to be deteriorating in the hotel and retail sections. Districts that have energy production reported an uptick with regards to oil and gas production and energy consumption. Employment levels rose moderately across most districts. Early rumblings of what will likely be wider wage increases are being intermittently detected.
In what was a key test for markets given last week’s bond related volatility, the United States sold $38 billion of 10-YR Treasuries in what would have otherwise been a routine auction. The reason it wasn’t was because of the recent sell-off in treasuries that drove the 10-yr up by about 40 bps in rapid fashion and the fact that there was a very weak auction of 7-year notes in late February. However, rates continued to settle in the wake of the successful auction and lower than expected readings from inflation data that showed prices rose less than expected in February.
In other news, on Thursday the Fed released a report showing US Household ended 2020 with record wealth of $130.2 trillion. $4.9 trillion was added from equity gains and about a trillion from gains in Real Estate assets.
Asset purchases continued at a pace of $40 billion a month for MBS and $80 billion a month for Treasuries. The benchmark yield on the 10 year is 1.63% up from 1.41% last week.
