On Monday, the Federal Reserve announced a series of new plans to help the market, including open asset purchases, designed to help the market function more effectively after the coronavirus crisis. The Fed announced that it will purchase $ 75 billion in national debt and $ 50 billion in institutional home mortgage-backed securities (MBS) every day this week, and that daily and regular repo rates will be reset to 0%.
In addition, the Fed stated that it would soon announce the "Main Street Commercial Loan Project" to support small and medium-sized business loans, complement the measures of the Federal Small and Medium Business Administration, and create two new liquidity instruments for corporate debt.
The market responded positively to these measures. In the short term, the spot gold price rose by nearly US $ 30 and returned to above US $ 1520 / ounce. The spot silver price rose by more than 3% in the day. The US dollar index tumbled 60 points to 102.13 in the short-term. Non-US currencies have generally risen, with the euro against the US dollar and the pound sterling against the dollar in the short-term by about 40 points, and the Australian dollar rose by more than 50 points.
The three major U.S. stock index futures rose in the short-term, from falling to rising, the Nasdaq futures rose rapidly to 2%, and the Dow futures and the S & P 500 index futures rose about 1.3%.
"We are now in a state of unlimited accommodation again," said Peter Boockvar, chief investment officer at Bleakley Consulting Group.
"The Coronavirus pandemic has caused immense difficulties in the United States and around the world. Our country's top priority is to take care of those who are infected and limit further spread of the virus," the Fed said in a statement. There is a lot of uncertainty, but it is clear that our economy will face serious chaos. We must take proactive measures in the public and private sectors to limit losses to employment and income, and to promote rapid economic recovery after interference is eliminated. "
The latest move is the Fed's most aggressive market intervention so far. Earlier, it had announced it would buy US $ 500 billion in US debt and US $ 200 billion in MBS. The new initiative represents an open commitment to the quantitative easing program.
"The Fed's policy is shifting to higher gears, trying to help support an economy that currently appears to be in freefall," Chris Rupkey, chief financial economist at MUFG Union Bank writes. "The central bank is changing its role, which is no longer the last lender, but the last buyer. Don't ask how much they will buy, this is truly unlimited quantitative easing. "
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