Photo taken on March 15, 2020 shows the U.S. Federal Reserve building in Washington D.C., the United States. The U.S. Federal Reserve on Sunday cut its benchmark interest rate by a full percentage point to near zero and will increase its bond holdings by at least 700 billion U.S. dollars amid mounting fears over the COVID-19 outbreak. (Xinhua/Liu Jie)
Photo taken on March 15, 2020 shows the U.S. Federal Reserve building in Washington D.C., the United States. The U.S. Federal Reserve on Sunday cut its benchmark interest rate by a full percentage point to near zero and will increase its bond holdings by at least 700 billion U.S. dollars amid mounting fears over the COVID-19 outbreak. (Xinhua/Liu Jie)

U.S. Federal Reserve officials are expected to discuss the central bank’s lending programs for businesses and local governments at its policy meeting on Tuesday and Wednesday as the COVID-19 fallout continues to ripple through the country, analysts said.

The Fed, at the moment, is “primarily focused on ensuring smooth functioning in financial markets via a wide array of liquidity programs”, said Tim Duy, professor of the University of Oregon and a long-time Fed watcher.

“The goal of these programs is to prevent a financial meltdown that would only intensify the deflationary pressure. Those programs will probably be the emphasis of this week’s policy meeting,” Duy wrote Tuesday in an analysis.

The Fed has cut its benchmark interest rate to near zero and unveiled new lending programs that would provide up to 2.3 trillion U.S. dollars to support the economy in responses to the outbreak of the coronavirus.

“The Fed is expected to further underscore that there is no arbitrary end date to its current programs,” said Diane Swonk, chief economist at Grant Thornton, a major accounting firm, adding the goal is to reassure financial markets and the public that “the Fed will not pull the plug on support too early.”

Swonk noted that the central bank is mulling expanding its Main Street Lending Program, which is targeted at businesses that are too big to qualify for small business loans but too small to access credit via the corporate bond market.

“Expanded eligibility would allow hospitals and universities to participate. This could be announced at the conclusion of the FOMC meeting this week,” Swonk wrote Sunday in a note, referring to the Federal Open Market Committee, the Fed’s policy-making committee.

The Fed has already expanded the eligibility criteria for a 500-billion-dollar lending facility set up to backstop municipal bond markets, which will allow smaller U.S. cities and counties to access liquidity from the central bank.

The Fed’s Municipal Lending Facility will now be open to U.S. counties with at least 500,000 residents and U.S. cities with at least 250,000 residents, the central bank said Monday in a statement.

“The Federal Reserve remains committed to using its full range of tools to support the flow of credit to households, businesses, and communities to counter the economic impact of the coronavirus pandemic and promote a swift recovery once the disruptions abate,” said the central bank.

“While we expect the Federal Open Market Committee to restate its commitment to keeping short-term rates as low as possible for as long as necessary, there will be more policy innovation coming in the near term,” said Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP.

“We anticipate further Fed asset purchases, with legislation allowing the purchase of non-federal debt of distressed corporations and the capping of interest rates, among other monetary policy initiatives,” he said.

Given the reluctance of Congress to supply a sufficient fiscal response to the financial crisis, and given at least a year for a safe vaccine to be developed, “we anticipate further losses in innovation and productivity,” said Brusuelas.

Duy believed that Congress needs to “pivot to viewing this crisis as temporary to a situation that is likely to need to be managed on a long-term basis.”

“We need to be thinking of how to handle the economic fallout for regional outbreaks in the future and creating a public health infrastructure to manage the virus. These are the sorts of actions that will enhance the resiliency of the economy until a treatment or vaccine emerges,” he said.

The Fed meeting comes as more than 26 million Americans have applied for unemployment benefits since the COVID-19 epidemic forced widespread business closures in late March.

“Look for the Fed to dramatically downgrade its assessment of economic conditions in the statement following this meeting,” Swonk said, noting that retail sales, home sales and industrial production all fell “at an unprecedented pace” in March.

The U.S. economy could take one to two years to rebound to full strength and more money will be needed from the Fed and Congress to fight the coronavirus pandemic, according to the CNBC Fed Survey released Tuesday.

Thirty-three percent of respondents believe the U.S. economy won’t be fully restored until the second quarter of 2022, the survey showed. In addition, respondents place a 61 percent probability on a second round of contagion in the fall and winter.

Robert Redfield, director of the U.S. Centers for Disease Control and Prevention (CDC), has warned that a second wave of the coronavirus this year could be worse because it is likely to coincide with the start of flu season.

Over 1 million people in the United States have been infected with COVID-19 as of Tuesday evening with the death toll exceeding 58,000, according to the Center for Systems Science and Engineering at Johns Hopkins University. Enditem

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