The Federal Reserve has unleashed a multitrillion-dollar program to buoy the U.S. economy against the COVID-19 pandemic.
While it has steadied the markets, the Fed is not really equipped to offset the smack down of small business owners and the close to 17 million Americans who have filed for unemployment in just the past three weeks.
The S&P 500 rose by nearly 1.5% on Thursday, its best holiday-shortened week since 1974 as the Fed unfurled its latest rescue plan.
Where the Fed has provided funding — mortgages, municipal bonds and investment-grade corporate debt — order has been restored and markets have made a comeback.
Here’s how it works though. The Federal Reserve is the agency closest to the financial system, so Congress asked it to deliver much of the funding promised to businesses in the $2 trillion CARES Act. However, the FED has to use lenders to get the money on the street.
Supply so far has not been able to meet demand, and banks have been largely unable or unwilling to process loan requests or distribute the funds.
“Businesses that don’t have a money manager, don’t have an attorney at their disposal — those people are not going to be helped by the Fed,” says Amanda Fischer, policy director for the Washington Center for Equitable Growth. “The most sophisticated businesses are the best positioned to get the PPP loans and are probably going to snatch them up and the money will be gone.”
The Fed doesn’t have the infrastructure to touch Main Street. It does by encouraging banks to lend.