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What is the Federal Reserve?
The Federal Reserve, also known as the Fed, is the central bank of the United States. It was created in 1913 to provide the nation with a stable and flexible monetary and financial system.
What are the Fed's latest moves?
The Fed has recently taken several actions to address the economic impact of the COVID-19 pandemic. These include:
- Lowering interest rates to near-zero
- Implementing quantitative easing to increase the supply of money and credit
- Providing liquidity to financial markets through various lending facilities
- Announcing plans to purchase corporate bonds and exchange-traded funds (ETFs)
Why did the Fed lower interest rates?
The Fed lowered interest rates to stimulate borrowing and spending, and to encourage businesses to invest and create jobs. By making it cheaper to borrow money, the Fed hopes to boost economic activity and prevent a recession.
What is quantitative easing?
Quantitative easing is a monetary policy tool used by central banks to increase the supply of money and credit in the economy. The Fed does this by purchasing government bonds and other securities from banks and other financial institutions, increasing the amount of money they have available to lend to businesses and consumers.
What are the Fed's lending facilities?
The Fed has established several lending facilities to provide liquidity to financial markets during the pandemic. These include:
- The Main Street Lending Program, which provides loans to small and medium-sized businesses
- The Municipal Liquidity Facility, which provides loans to state and local governments
- The Commercial Paper Funding Facility, which provides short-term loans to businesses
- The Primary Dealer Credit Facility, which provides loans to financial institutions that trade with the Fed
Why is the Fed purchasing corporate bonds and ETFs?
The Fed is purchasing corporate bonds and ETFs to support the functioning of credit markets and to provide additional liquidity to businesses. By purchasing these securities, the Fed is helping to ensure that companies can continue to borrow and invest, which is essential for economic recovery.
