Fed's Corporate Debt Purchases Raise Questions About Economy's Worst-Off Sectors

Strategic Insights -

The Federal Reserve's disclosure of its index of nearly 800 companies, including Apple and Microsoft, has sparked a fresh debate about the central bank's response to the economic crisis and whether its efforts are targeting the neediest sectors of the economy. The Fed's corporate debt program, designed to support the markets and keep companies afloat, has raised questions about why the central bank is buying debt of massive corporations while leaving smaller businesses and vulnerable sectors behind.

Key Takeaways:

  • The Fed's index includes nearly 800 companies, with Apple, Microsoft, and U.S. subsidiaries of foreign firms like Toyota, Volkswagen, and BMW at the top.
  • The central bank's corporate credit facilities, supported by the Treasury Department's $75 billion allocation, have bought almost $429 million in individual bonds.
  • The Fed's response has been criticized for not targeting the most vulnerable sectors of the economy, such as hotels, casinos, and retail stores.
  • Economists argue that the Fed's actions could lead to discussions about the limits of its powers and the potential for future repercussions.
  • The index will be recalculated every four to five weeks, allowing new companies to meet eligibility requirements and existing ones to be monitored.

The Fed's program has been supported by the Treasury Department's $75 billion allocation, but the central bank's response has been criticized for not targeting the most vulnerable sectors of the economy. **Aaron Klein**, policy director at the Center on Regulation and Markets, said that the solution to the economic crisis "is not buying Apple, Microsoft and Comcast debt."

Statistics:

  • The Fed's corporate credit facilities have invested almost $429 million in individual bonds.
  • The Treasury Department has allocated $75 billion to the Fed's corporate credit facilities.
  • The index includes 794 companies across various industries, including energy, utilities, and technology.
  • The Fed uses the index to guide its corporate debt purchases and updates it every four to five weeks.

Sources:

  • The Federal Reserve
  • The Wall Street Journal
  • Brookings Institution
  • Grant Thornton
  • Northwest Passage Capital Advisors
  • Cares Act
  • The Center on Regulation and Markets at the Brookings Institution