MNI POLICY: Fed's Main Street Edges Up; Total Assets at USD7T

The Federal Reserve facilitated USD68 million in emergency loans this week to businesses struggling to survive the coronavirus-fueled recession, while its overall asset portfolio declined modestly to just under USD7 trillion.

Data released Thursday by the Fed showed the loan balance under its Main Street Lending Program rose to USD82 million on Wednesday from USD14 million a week before.

The program designed to assist small and medium-sized companies hurt by the coronavirus crisis has had a sluggish start, and the Fed has faced criticism from lawmakers for the weak uptake so far. In recent weeks the Fed adjusted the terms to allow nonprofit organizations to qualify.

The Fed's balance sheet fell by USD16 billion to USD6.95 trillion as of July 29.

EMERGENCY EXTENDED

The total asset decline was largely due to a decline of USD37 billion in residential mortgage-backed securities to USD1.9 trillion. This was nearly offset by an increase of USD28 billion in Treasuries to USD4.3 trillion.

Foreign currency swaps with other central banks continued to fall, this week by USD4.5 billion, to their lowest since mid-March at just over USD117 billion. This Fed this week announced that it would extend its temporary currency swap lines with nine central banks to March 31, from mid-September.

Meanwhile, other facilities aimed at steadying credit and other financial markets continued their recent pattern of limited demand following an initial surge in their use in March when the Fed cut interest rates to effectively zero and launched a range of emergency credit programs.

The pace of corporate bonds purchases continued to fall to a USD31 million daily average, down from highs of USD300 million per day, while reaching USD12 billion in total purchases.

Earlier this week the Fed extended 7 of its 9 emergency 13(3) facilities through December 31 that were scheduled to expire around September 30. The Municipal Liquidity Facility is already set to expire on December 31, and the Commercial Paper Funding Facility is set to expire on March 17.

Fed Chair Jerome Powell said this week that the Fed's facilities have not done as much lending as originally thought "because markets started working again fairly soon after we announced the facilities, particularly in the corporate credit facilities, also in the muni space."

It is important that the facilities stay in place, the Fed Chair said, "until we're very confident that the turmoil from the pandemic and the economic fallout are behind us."