August 15, 2020

Fed Extends Emergency Programs on Eve of July Policy Announcement

“They’re facing the fact that the Covid numbers have gone in the wrong way for several weeks,” said William English, a former top staff official at the Fed board who is now at Yale. “It is pretty clear these programs are going to be helpful for several more months.”

Seven of the nine programs were set to expire on or around the end of September, but they have now been extended through the end of the year. Two others — one that buys municipal debt and another that smooths over the market for short-term business funding — already had later end dates.

Providing credit has been one facet of the Fed’s policy response as the coronavirus has closed businesses, cost jobs, and kept millions of Americans in their homes and away from malls, planes and movie theaters. The central bank also cut interest rates to near-zero in March, a bid to shore up lending and spending and cushion the blow to economic activity. It has been buying vast amounts of government-backed debt in an effort to keep bond markets functioning normally.

Officials are now debating what comes next, and economists are expecting some discussion of the possibilities after Wednesday’s meeting.

While officials have made it clear that interest rates will be low for a long time, central bankers must decide how to signal just how patient they plan to be. They could commit to low rates by promising not to raise them until after a given date, or by tying near-zero rates to a certain inflation or unemployment threshold.

Some economists, like Kathy Bostjancic at Oxford Economics, said it was possible that the Fed would commit to an inflation or employment goal at this meeting, but most Wall Street analysts expect policymakers to wait.

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