The Federal Reserve announced a variety of new lending initiatives aimed at injecting $2.3 trillion of financing for businesses as well as state and local governments. The new stimulus will include lending to governments as well as increased purchases of corporate bonds, including high-yield or junk bonds. Source: Wall Street Journal
CARES Act – COVID-19 Federal Rescue Bill – Summary
Note: We are working with our partners at the U.S. Department of Labor to implement the programs in the CARES Act affecting Idaho Department of Labor customers as quickly as possible. This could take several weeks once USDOL issues the guidance to the states. Updates will be posted on Labor’s COVID-19 website,
Direct Rescue Checks to Households – All U.S. residents with adjusted gross incomes up to $75,000 — $150,000 for married couples — will receive $1,200 — or $2,400 for couples — in direct payments. Families get an additional $500 per child, and payments phase out above the $75,000 mark, disappearing altogether at $99,000.
Enhanced Unemployment Insurance (UI) Benefits – UI benefits expand in scope, duration and value. Claimants can get an extra $600 per week for up to four months. Gig economy workers are also now eligible for benefits, affecting a multidimensional expansion of unemployment benefits — more people, bigger payments, longer duration.
$500 Billion in Flexible Rescue Loans – The Treasury has discretion to allocate up to $500 in loans to failing industries, or local and state governments. An accountability committee will be set up to oversee the program, though Treasury Secretary Steve Mnuchin has broad power to initiate lending.
$100 Billion for Hospitals – Hospitals and providers will get $100 billion in grants both to help fight COVID-19 and to offset the revenue they are losing from canceling elective procedures. The rescue bill also raises the Medicare payments that hospitals receive for treating COVID-19 patients.
$58 Billion for Airlines – Airlines will receive $29 billion in grants and $29 billion in loans and guarantees. They also will receive a reprieve from excise taxes on fuel, cargo and tickets. The funding comes with a condition of limits of executive compensation and a prohibition on stock buybacks.
Incentives for Retaining Payroll – Businesses receive a tax credit for up to 50 percent of the cost of wages if they keep idled workers on payroll. To demonstrate that these workers would have been laid off otherwise, businesses must demonstrate a 50 percent loss compared with the same quarter in recent years.
$150 Billion for State and Local Governments – Direct budgetary relief will be available for local and state governments facing severe collapses in revenue. At least $8 billion is earmarked specifically for local governments.
Miscellaneous Spending and Incentives
- $10.5 billion for the Defense Department for purposes such as deploying the National Guard to help state virus response teams, as well as vaccine and treatment R&D at the Pentagon.
- Measures to combat price gouging on COVID-19 tests, to protect insurers from excessive costs.
- Employers and self-employed individuals can defer some payroll taxes, to pay them over the following two years.
- $200 million investment in telemedicine.
- $24 billion in relief for farmers and ranchers.
- $25 billion in extra funds for food assistance programs (SNAP, child nutrition).
- $30 billion in emergency assistance for schools.
- Tax incentives for distilleries to produce alcohol for hand sanitizer.
- $10 billion loan to prevent insolvency at the U.S. Postal Service.
Items NOT Included
- No rescue money allocated for cruise ship companies.
- No money to add oil to the national strategic petroleum reserve.
- No direct rescue money for health insurance companies.
- No money to address the “homework gap” – referring to students without sufficient internet connectivity or equipment to learn from home.
Federal Monetary Policy Response to COVID 19
As the economy ground to a halt, financial markets began scrambling to acquire cash. The key premise here is that when things get rough, everybody – banks, corporations, households, foreign governments – just want to hold cash. To make sure there’s enough cash in the system, the Federal Reserve (the Fed) essentially is buying every financial instrument – or risk asset – out there. If any institution needs to sell assets to get cash, there’s a good chance the Fed will buy.
Interest Rate Reductions – This is the most conventional monetary policy tool. The federal funds rate was dropped at two sequential Fed meetings. Real interest rates are now zero — if not negative — and the federal government can borrow virtually for free. As of March 30, the interest rate on 10-year treasuries was only 0.7 percent.
Conventional Asset Purchases – The Fed has initiated at least $1.5 trillion in bond purchases in a mechanism essentially repetitious of quantitative easing, as implemented during the last recession. While this is not a “conventional” monetary policy tool — it has only been tried on any real scale in the past two decades — it at least has precedent in the last recession.
Lending to Foreign Institutions – As foreign governments and corporations have scrambled to acquire cash, exchange rates have been disrupted. To ensure the proper functioning of foreign exchange markets, the Fed has initiated lending to foreign central banks.
Lending to Banks – Normally, the Fed makes very short-term loans (overnight lending) to U.S. banks to cover reserve requirements. To ensure the integrity of credit markets, the Fed initiated 90-day loans to American banks at near zero interest rates.
Buying Commercial Paper – Commercial paper is a financial instrument that allows corporations to raise liquidity short term through what amount to IOUs. Corporations regularly sell commercial paper to banks to meet payroll and other expenses. At any given time, there is well over $1 trillion in outstanding commercial paper in the U, S., making this a critical source of liquidity for U.S. corporations. On March 17, the Fed announced that it was establishing a special credit center to directly purchase up to $1 trillion in commercial paper to ensure continued access to credit for U.S. corporations.
Intervention in the Repo Market – Repos are another way for institutions to raise liquidity. This instrument constitutes a contract whereby one institution sells an asset — usually treasuries — to another institution, while agreeing to buy that asset back at a later date at a higher price. The selling institution gets cash in the short term, while the buying institution makes money on the price difference on the resale. The Fed announced on March 17 that it would become an active participant in the repo market.
Buying ETFs – Normally, the Fed injects liquidity into the market by buying bonds. However, they have now expanded this operation to begin buying bond ETFs (Exchange Traded Funds), which are packaged investment instruments normally purchased by retail investors. Instead of just buying underlying assets, the Fed is now also purchasing “end use” investments.
Source: Wall Street Journal
Sam.Wolkenhauer@labor.idaho.gov, regional economist
Idaho Department of Labor
(208) 457-8789 ext 4451