The effects of Coronavirus (COVID-19) continue to be felt in the U.S. and around the world. In a clear sign that the Federal Reserve (the Fed) is willing to do whatever it takes to help mitigate the negative impact of COVID-19, it lowered the Fed Funds rate to 0% – 0.25% and announced additional quantitative easing measures of $700 billion in U.S. Treasury and mortgage-backed purchases. It also reduced bank reserve and capital requirements, with the goal of freeing up more funds for the banks to lend. And, the Fed lowered the interest that it pays banks for money held at the Fed to incent them to lend to private companies. Finally, the Fed has pledged to provide unlimited funds to keep the U.S. financial markets operating properly and will help provide dollar liquidity to major foreign central banks.
The Administration is also implementing measures to help businesses, state and local governments by letting them use payroll tax reserves for wages, it has increased Medicaid payments to states and has many other potential measures under consideration. We anticipate legislation to aid transit authorities and other municipal agencies to fill a shortfall of tax, toll and other revenues. In addition, Congress and the Administration have stated their intent to aid small businesses with programs to help retain employees during the downturn. Our expectation is that these measures will continue, possibly necessitating an additional trillion dollars in Federal assistance during this trying time.
Market reaction to the Fed’s moves and the continued impact globally of COVID-19 on the economic, fiscal and social environment, was strongly negative. The U.S. equity markets dropped precipitously soon after they opened, triggering a fifteen-minute trading halt, and they have now declined approximately 30% from their peaks, putting them firmly in bear market territory.