The Federal Reserve announced this morning that it would provide an additional $2.3 trillion to support the United States economy. Part of this is the expansion of the TALF (Term Asset-Backed Securities Loan Facility) to include AAA conduit CMBS bonds in addition to further acquisitions of various corporate bonds. Hopefully, this action will assist the credit markets to return to a normal flow.
CMBS lenders see this action as a big step towards returning to making new loans, since the markets froze up around a month ago. Some CMBS lenders are starting to quote new business with the hope of closing these loans in June. Other lenders are viewing the Fed’s action as a positive action that will allow them to price loans with less volatility.
In a briefing from RBC Capital Markets, while many of the new facilities have an end date of September 2020, Powell is very clear that such dates are relatively meaningless, and the Fed will extend all programs as needed. The Fed wants to build a bridge to the recovery and, insofar as that bridge needs to be longer, it will remain engaged. It wants to be sure that the recovery is well underway and sustainable. If fears arise of a COVID-19 wave 2 coming in the fall, expect these programs to remain online for much longer. Powell also notes that when the Fed begins to cease any non-facility stimulus (QE rates), it will do so extremely slowly. Thus, we think that even under very positive scenarios for COVID-19, monetary policy is likely to remain highly accommodative for at least 12–18 months.