Fed: Support Steady as She Goes, Expands SMID Loan Program

Vito J. Racanelli

Last week’s Federal Open Market Committee meeting concluded with no news and not much different from the Fed’s previous plans to expand its balance sheet to stabilize markets. Policymakers once again made it clear, as if it were really necessary, that the Fed has the market’s back.

Anyway, it is not as if any trader or investor conscious for the past eight weeks ever doubted the Fed’s desire to appease. But you know, it’s just a little love in these tough times. At the conclusion of its two-day policy meeting, the Federal Reserve didn’t unveil any new programs, but the central bank did pledge lasting support for the economy. The market and the Fed are married. Till death do they part.

The Fed opened the money spigots in March, with a huge trillion dollar bond buying program, and also supported other parts of financial markets to support the availability of credit. To judge by stock markets so far, it has been a resounding success, this despite the high likelihood of a recession this year. We had a negative 4.8% 1Q GDP print.

Fed Chairman Jerome Powell had this to say: “…We are going to not be in any hurry to withdraw these measures…We are going to wait until we are quite confident that the economy is well on the road to recovery” before backing off.

There you have it. It’s open ended love.

On Wednesday, the first quarter GDP number came in a negative 4.8%. Wow. Steepest decline since the last recession.

Separately, the Fed said Thursday it will expand loan offerings and qualification rules for its forthcoming $600 billion lending effort designed to reach small and mid-size businesses hit by the coronavirus pandemic, the Main Street Lending Program. Businesses with up to 15,000 employees and $5 billion in annual revenues in 2019 are now eligible, up from earlier limits of 10,000 employees and $2.5 billion in revenue. The minimum loan size will also decline to $500,000, from $1 million. Gee, not so small, eh?

In a news conference after the FOMC meeting, Powell again called on Congress and the White House to spend more money to prevent deeper economic damage from the coronavirus pandemic. He warned of potential a double-digit percentage jobless rate in the April employment report, to be released next week. Is the Fed saying it needs help? Yes, probably.

Data company IHS Markit expects GDP to decline at a 37% annual rate from April to June, which would represent the biggest drop since quarterly records began in 1947.

The yield on the benchmark 10-year U.S. Treasury note was 0.62% vs 0.65% one week previous.

Upcoming FOMC meeting on June 9-10. More talk, no action?

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Vito J. Racanelli
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