Fed’s Corporate Bond Buying Foresaw a Year of Covid Pain
Looking back, moral hazard risks from the central bank’s credit-market intervention have to be weighed against the length of the pandemic.
Jerome Powell might still have the full arsenal if Steven Mnuchin had not forced his hand.
Photographer: Susan Walsh-Pool/Getty Images
On March 23, 2020, the Federal Reserve embarked on an audacious policy path that sent shockwaves through financial markets. After a full 12 months living amid a pandemic, and with lockdowns popping up around the world yet again, the decision by Chair Jerome Powell and his colleagues only looks better in hindsight.
Today marks the one-year anniversary of the Fed’s creation of the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility; the announcements of a Main Street Business Lending Program and the reemergence of the Term Asset-Backed Securities Loan Facility; and the expansion of the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility. These programs, combined with Minneapolis Fed President Neel Kashkari’s pledge that the Fed had “infinite cash” to shore up the financial system, were enough to promptly halt declines in stocks and risky corporate debt.