Harker says Fed debating whether to expand its interventions

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The U.S. central bank is weighing whether to expand the scope of its interventions in financial markets being battered by concerns over the coronavirus, Philadelphia Federal Reserve Bank President Patrick Harker said.

Additional measures could include redeploying a so-called term auction facility — a tool the Fed used during the last financial crisis to advance loans to banks — as well as central-bank purchases of municipal debt, Harker said Wednesday in an interview with Bloomberg News.

Philadelphia Federal Reserve Bank President Patrick Harker
Federal Reserve Bank of Philadelphia President Patrick Harker

The term auction facility is an option “we’re still considering, and that would be relatively quick to implement,” Harker said. On the possibility of intervening in the municipal bond market, he said “no decision has been made yet on any of that,” but “I do think it’s worthy of a debate and discussion.”

The Fed is under pressure to do more to keep credit flowing to a U.S. economy getting hammered by the coronavirus pandemic, which investors fear will topple the country, and the world, into recession.

Late Sunday, Fed officials announced they would slash short-term rates to nearly zero and buy hundreds of billions of dollars of U.S. Treasury and mortgage-backed securities. The central bank is trying to improve liquidity in the bond market, which seized up last week amid the turmoil, and cushion the blow to the economy from public-health measures being implemented to slow the spread of the outbreak.

The Fed followed up Tuesday with the announcement of a commercial paper funding facility — another crisis-era tool to provide liquidity to large companies — and a primary dealer credit facility, which will allow dealer banks to pledge a wide range of securities as collateral in exchange for short-term cash loans from the central bank.

Harker said liquidity conditions in bond markets were “getting better” despite ongoing volatility.

”What we did on Sunday was put together a package — that we then added to, of course, with the commercial paper funding facility — to restore liquidity to the markets that must work if the economy is going to work,” he said. “Now, the question is what more can we do in terms of dealing with the real challenges that small businesses and households will have.”

Americans working in bars and restaurants across the country are being laid off en masse this week as local officials order widespread closures to prevent the spread of the virus. President Donald Trump’s administration and congressional leaders are currently working to pass emergency relief legislation that would send checks to Americans to tide them over.

The Philadelphia Fed chief endorsed that approach.

“We don’t have time to be nuanced right now,” Harker said. “I think at this point the prudent course of action is to over-respond, and then we can figure it out later.”

Bloomberg News