When the Federal Reserve announced its Commercial Paper Funding Facility last week, a facility that hasn’t operated since the 2008 financial crisis, many commentators and analysts jokingly wondered when the Fed would bring back other 2008-era rescue vehicles, such as the Term Auction Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility. But while those commentators were tongue-in-cheek, the Fed did quietly relaunch many of those facilities last week.
The Primary Dealer Credit Facility was restarted last week, with the announcement coming after the close of business. And the Fed established a Money Market Mutual Fund Liquidity Facility too, with that announcement coming at 11:30 on Wednesday night.
With the Fed’s “bazookas” largely falling flat and failing to staunch losses in stock markets, it seems like the Fed is grasping at straws trying to stabilize markets and ensure an orderly flow of liquidity to market actors. Pretty soon we’ll see the entirety of the Fed’s crisis-era rescue facility apparatus up and running, because the Fed doesn’t really know what else to do.
A 100-basis point rate cut plus $700 billion in quantitative easing resulted in stock markets’ worst day ever. A pledged $5.5 trillion to repo markets didn’t work either, with demand for that liquidity coming in far under expectations. So at this point the Fed is just throwing darts at a wall to see what sticks. God forbid the Fed should run through its 2008 playbook, find that nothing works, and decide to start to innovate.
That would likely result in the introduction of negative rates which, as evidenced by the examples of Europe and Japan, have done nothing to stimulate economies. Let’s hope that it doesn’t come to that but, with the Fed already having opened just about its entire bag of tricks to no effect, and with the worst part of the crisis still ahead of us, there’s no telling just how desperate the Fed will get and what levels it will stoop to in its futile attempts to keep stock markets from crashing.