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On Wednesday, June 17, 2020, from 12:00 p.m. (ET)
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Witnesses for this one-panel hearing will be:
• The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System
Purpose and Background
The Federal Reserve Act (FRA) directs the Chairman of the Board of Governors of the Federal Reserve System (Board) to testify before the House Committee on Financial Services and the Senate Committee on Banking twice a year on how the Board handles monetary policy and its observations on economic developments. Each appearance requires the Board to supply the Committees with a written report known as the Monetary Policy Report.
Monetary Policy and Labor Market Conditions during the COVID-19 pandemic
After supply side shocks from the COVID-19 outbreak caused financial market turmoil, the Federal Open Market Committee (FOMC) made an announcement on March 3 in between its previously announced meetings that it would reduce the federal funds rate by fifty basis points. On March 15, 2020, the FOMC made its second announcement in two weeks, cutting the overnight interest rate percent, to a range between 0 and 0.25 percent (also called the “zero lower bound”). The FOMC also announced on March15 that it would make large scale asset purchases (LSAPs) of $500 billion in Treasury securities and of at least $200 billion in agency mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae (agency MBS) over the next few months. On March 23, the Fed announced that it would expand its purchases of Treasury securities and agency MBS to an unspecified amount “to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy,” and would for the first time purchase agency commercial MBS (CMBS) issued by Fannie Mae, Freddie Mac, and Ginnie Mae.
Emergency Lending Prior to the Coronavirus Aid, Relief, and Economic Security (CARES) Act During the 2008 financial crisis, the Federal Reserve used “emergency lending” authorities granted to it under Section 13(3) of the Federal Reserve Act to rescue AIG and finance JP Morgan’s purchase of Bear Stearns. Through the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress restricted the use of this authority to prohibit lending to insolvent institutions, and also required that emergency lending facilities that are broadly available to institutions, which the Fed interprets to mean that at least five institutions are eligible. The Secretary of the Treasury must also approve the establishment of any 13(3) facility. On March 17, 2020 the Fed began setting up a wide range of facilities utilizing their Section 13(3) lending powers aimed at addressing severe liquidity constraints in financial markets.
Primary Dealer Credit Facility (PDCF): On March 18, the Fed announced a facility to offer support to the large banks and securities broker-dealers known as primary dealers. To further boost liquidity among primary dealers, the Fed expanded the collateral eligible for open market operations to include corporate debt securities, commercial paper, mortgage-backed securities, and more.
Money Market Mutual Fund Liquidity Facility (MMMLF): On March 18, the Fed announced the creation of the MMMLF administered through the Federal Reserve Bank of Boston. The MMMLF lends funds to prime money market funds secured by high-grade collateral, including Treasury securities and top-rated commercial paper, and is shored up through $10 billion from the ESF.
Term Asset-Backed Securities Loan Facility (TALF): On March 23, the Fed announced the reestablishment of the TALF. The TALF supports the asset-backed securities (ABS) market by offering up to $100 billion in liquidity for investment-grade collateral that includes auto loans, student loans, small business loans, and more, though not consumer loans.
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