Limited support for risky loans
Officials are trying to ensure that a broad swath of companies can continue to receive credit, allowing them to remain in business and to hang workers.
The Fed’s efforts to pump new money so far into financial markets have helped improve tense trading conditions. But risky credit markets – which companies with volatile businesses or large debt weights rely on to continually refinance their obligations – had received no direct help, and saw relatively little improvement.
Borrowing has become comparatively expensive for companies with risky lending. This makes it less likely that such businesses will, at the best of times, survive a sharp decline.
The new expansion may help soften the sharp cuts between investment grade and junk conditions, but only to a limited extent. Under one program, American Airlines and United Airlines would not sell their bonds or loans to the Fed because their ratings were below investment grade before the Fed’s cutoff date. Southwest Airlines would be eligible, as it is still rated investment grade. Delta, even if it was recently downgraded by Moody’s, will be included.
“It’s not like the door is open in every part of the world,” said Julia Coronado, founder of Macroprolicy Perspectives. “It sounds shocking, but I think there are definitely still credit-checks and quality standards.”
The central bank hinted at its limits on Thursday. Some legalists, including House Speaker Nancy Pelosi, a Democrat, Is urging While the central bank “Think big,” Others worry That the money going to the Fed would be used to “bail out” big companies.
Mr. Powell insisted that the Fed cannot actually distribute the money, just enable loans.
“These are lending powers, not spending powers,” Mr. Powell said. “The Fed is not authorized to give money to special beneficiaries.”
Jim Tankersley, Emily Flitter and Matt Phillips contributed reporting.