Fed made two important statements within the scope of ongoing stimulus moves. The first of these; banks to make the Main Street Loan Program functional. The other is more importantly that the Fed will start to purchase corporate bonds.
· A loan flow of approximately 600 billion USD will be provided to SMEs through the Main Street Crediting program.
It is good news that SMEs and local businesses, who have suffered the most from the pandemic, will start receive lending in this way. In terms of cash creation, this type of business will continue to be troublesome, so they will need support in the sense that they can provide continuity under current conditions and the loss of employment will not deepen.
· Fed will start to purchase corporate bonds.
It is an improvement that will increase the portfolio of the Fed's monetary expansion in terms of financial support and risks. In this context, the central bank will create a portfolio of corporate bonds based on a broad and diversified market index of US corporate bonds. Under the program, also known as the Secondary Market Corporate Credit Facility, 250 billion USD corporate bonds will be purchased from eligible issuers.
Fed President Powell makes his two-day semi-annual presentations today and tomorrow. He will speak in front of the Senate Banking Committee today and House of Representatives tomorrow. Now, of course, it is not expected to deviate much from the referrals he made at the Fed meeting last week. The recovery process of the economy will be long and the Fed will not be able to assess tightening until 2022. It will take time for the disinflationist risks to be left behind and the employment market to recover. In many ways, comparative data may seem relatively good, as the pandemic period is currently being taken the base point, but it is important that the data should be better than or close to the normal period to avoid recession effects. As for the Fed's monetary expansion, the ceiling stands in an uncertain place as the base stands at current point. The Fed has taken a stance that will increase the quality and quantity of monetary expansion to the extent, if necessary.
The subject of the yield curve control will be the main issue in the question and answer part, Powell had not elaborated on this last week very much. The interest rate rise in certain maturities, in an environment where the necessary economic revival is not achieved, is a situation that the Fed will not allow under normal conditions. So, Fed may tend to buy more bonds at the maturities required to naturally adjust the yield curve to the horizontal shape. This is the basic logic of yield curve control. The details of Powell will also give an idea of the extent of monetary expansion, and his answer to this question will probably be more prominent than the main text.
Source: Tera Menkul
Hibya News Agency