Fed Extends Lending Programs Through December Amid Slowing Recovery

The Federal Reserve Building is seen through a fence in Washington on June 17, 2020. (Olivier Douliery/AFP via Getty Images)

The Federal Reserve on Tuesday announced an extension of its lending facilities that were originally scheduled to expire on or around Sept. 30, in a sign that the impact of the COVID-19 crisis continues to cloud the economic outlook.

The pallet of facilities, ranging from credit to small businesses under the Main Street Lending Program (pdf) to the purchase of corporate bonds via the Secondary Market Corporate Credit Facility (pdf), will be extended through the remainder of 2020, the Federal Reserve Board said in a statement.

The Fed said the aim of the extension is to “facilitate planning by potential facility participants and provide certainty that the facilities will continue to be available to help the economy recover from the COVID-19 pandemic.”

The lending facilities have provided a key backstop to the pandemic-ravaged economy, stabilizing markets and ensuring that the flow of credit to households, businesses, as well as state and local governments does not dry up. Fed officials said earlier that the central bank stood ready to deploy all tools at its disposal to buoy America’s troubled economy, including by keeping the facilities operational as long as needed.

Some economists suggest the timing of the announcement suggests Fed economists are poised to express some gloom in a statement on the economic outlook that will come after Wednesday’s culmination of a two-day Fed policy meeting on interest rates. The Fed’s benchmark short-term interest rate is currently set near zero.

“The manner the #Fed did this—at the start of a two-day policy meeting—could well raise as many questions as why, if not more,” Mohamed El-Erian, chief economic adviser at Allianz, said in a tweet.

“Sign of times. Sigh,” wrote David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings, in a post on Twitter.

After the previous meeting of the Federal Open Market Committee last month, Fed officials said that rates would likely stay at around zero through 2022, although minutes of the June meeting show some officials felt the committee should provide “greater clarity” about the future path of rates.

Known as “forward guidance,” this kind of statement about the Fed’s expectation for future interest rate levels helps provide households and businesses with greater certainty about the cost of borrowing. If such guidance indicates that officials expect to keep interest rates low for longer going forward, it may encourage both companies and consumers to borrow and spend, providing stimulus to the economy.

With Fed policymakers sounding a largely downbeat note on the economy in recent speeches and appearances, some Fed watchers cited by The Associated Press expect no rate increase until 2024 at the earliest.

Lael Brainard, a member of the Fed Board of Governors, said earlier this month that the recent spike in COVID-19 infections clouded the prospects for economic recovery.

“The recent resurgence in COVID cases is a sober reminder that the pandemic remains the key driver of the economy’s course,” she said in a speech. “A thick fog of uncertainty still surrounds us, and downside risks predominate.”

As evidence that the pace of economic recovery has slowed, Brainard cited the persistently high number of Americans filing for unemployment benefits each week. After falling every week since hitting a high of near 7 million at the end of March, the number of new jobless claims filed on a weekly basis has plateaued around 1.4 million for several weeks, Labor Department figures show.

Consumer confidence also dropped more sharply than forecast on Tuesday, with the Conference Board’s index dropping to 92.6 from 98.3, reinforcing the view that economic recovery is slowing.