Just as it did ahead of the previous FOMC Meeting, the Fed made a major announcement just one day before the meeting’s outcome and press conference. This time, the Fed announced that it extends its lending facilities that were bound to expire at the end of September, by another three months, to the end of December.
Yesterday’s announcement triggered another wave of USD selling across the FX dashboard. The USD was already on a downtrend before that, and yesterday’s announcement resulted in new lows for the worlds’ reserve currency, for example, against the GBP.
Fed’ Bazooka Ready to Be Deployed
Few market participants, especially retail traders, have a true understanding of what the Fed’s emergency measures stand for. Moreover, despite the relative financial stability seen in the US markets (i.e., stock market), the facilities provided by the Fed have barely been used thus far.
So far, the emergency lending programs have seen little demand. Some of them turn out to be too complicated and expensive to use. Others, destined to lower private-sector’s borrowing costs, were not used to their full capacity.
This tells us that the crisis is not that acute in the United States. Or, that the Fed considers that the virus outbreak is more persistent than initially thought and gives everyone another chance to participate in the programs, should they be needed.
All in all, the Fed’s announcement is another easing measure, as the program extension offers a bit of comfort that resources are there if needed. Besides that, the Fed sends, yet again, another strong message to financial markets.
With these eight programs in stand-by and ready to use, the Fed shows its “bazooka,” or the “loaded gun.” So far, only the PPP has been fired, with the rest, armed and ready for deployment.
If the rest of the programs were not used so far due to the complicated terms or difficult conditions, the Fed could adjust that overnight, in a blink of an eye. At this point, it matters that the market and the financial community are aware of the loaded guns and what they mean – multi-trillion-dollar firepower to support the economy through these difficult times.
The market is yet to react to the Fed’s news. After all, it is not something new, as the programs were available. However, their availability until the end of the year signals that the Fed is there, watching and intervening if needed.