The Federal Reserve has signaled its willingness to buy assets or make loans in any market it thinks will be necessary to stave off further job losses and firm failures.
The central bank has tried to identify “the priority areas where we thought help was needed,” Chairman Jerome Powell said Thursday. “As we identify other areas, we won’t hesitate to move.”
The Fed’s initial response to the economic crisis borrowed from programs developed by former Fed Chairman Ben Bernanke, who during the 2008 financial crisis broke the seal on lending authorities the Fed hadn’t employed since Great Depression.
Now the Fed is devising new tools, relying on the advice of British journalist Walter Bagehot, author of an 1873 book that central bankers still use as a guide for crisis management: “The holders of the cash reserve must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others,” Bagehot wrote. “They must lend to merchants, to minor bankers, to ‘this man and that man,’ whenever the security is good.”
For the Fed on Thursday, “this man and that man” was expanded to include:
- Some riskier classes of corporate debt beyond the investment-grade space.
- The highest-rated tranches of existing commercial mortgage-backed securities and newly issued collateralized loan obligations.
- Short-term debt from states, counties and cities.
Mr. Powell deflected worries that the expansion of credit by the Fed would lead to inflation.
“I worry that in hindsight, you will see that we could have done things differently. But one thing I don’t worry about is inflation right now,” he said.