Stocks are poised to end the week on a very strong note, a sign that investors are encouraged by the potential of an economy that can snap back quickly – and it’s largely due to an initiative from the Federal Reserve.
Specifically, America’s central bank has announced a plan to inject a whooping $2.3 trillion into businesses and governments that are feeling the strain of the pandemic. It could be one of the most important initiatives coming out of the sharp recession the economy has experienced as states have essentially shut things down to better fight the coronavirus and save lives.
So, just what does this ambitious plan from the Fed entail? Let’s take a look at how this new plan aims to backstop a U.S. economy in dire need.
According to Chairman Jerome Powell, the Fed is aiming to provide as much relief and stability during these times as it can while the country prioritizes fighting the virus and caring for patients that have fallen ill because of it. Powell also noted how he wants the Fed to act forcefully and aggressively until the economy is back on the road to recovery.
Here’s a look at some of the stipulations laid out in the multi-trillion dollar initiative:
- Under the plan, the Fed plans to offer loans for businesses with up to 10,000 employees that posted revenue of less than $2.5 billion in 2019. Those businesses that apply for and are granted a loan wouldn’t have to pay anything in principal or interest for one year.
- Main Street loans are expected to range from $1 million to $25 million, but not exceed four times the borrower’s previous year’s filed income earnings. The interest rate is expected to be equal to its Overnight Financing Rate, which is currently 0.01 percent, and with a four-year maturity.
- The initiative also calls for a Payroll Protection Program, which the Fed says is intended to streamline money to small businesses via a $500 billion program.
- The establishment of a Municipal Liquidity Fund is also expected, which is intended for states and municipalities to protect themselves against losses.
- Finally, the Fed expects to ease credit limitations for households and businesses via credit facility expansion, which should make it easy for families and businesses to get by until things fully rebound.
All of these initiatives are good news, and Wall Street has responded accordingly. Experts say that this new initiative could be key to avoiding a more severe recession or even a depression.
While many economists are still warning that the country isn’t out of the woods yet, they’ve been quick to praise the actions of the Fed. Many historians blame the U.S. central bank for playing a large role in the Great Depression. It’s clear that Jerome Powell is not interested in repeating those same mistakes that his predecessors have made.
