As stocks headed for their worst day since 1987’s Black Monday Crash, the Federal Reserve announced further measures to prop up liquidity including a potential injection of more than $1.5 trillion into the market; stocks responded immediately, cutting losses in half on the announcement, before dropping back down 8%.
- The Fed said it will ramp up its overnight funding operations—buying “repos,” or repurchase agreements—by $1.5 trillion over the next two days.
- “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the New York Fed said in a statement on Thursday afternoon.
- The Fed also widened the range for its reserve management purchases—which had previously been restricted to short-term Treasury bills—to include other types of financial instruments.
- The moves are designed to preserve liquidity in the market; in other words, the Fed wants to prevent “freezes” and make sure buyers and sellers still have the ability to trade.
- It’s the third time in four days the New York Fed has announced that it will bulk up lending in the repo market: on Tuesday, it announced an injection of $50 billion, and it added another $25 billion on Wednesday.
- Stocks initially pared back nearly half their losses on the announcement, but within the hour had dropped back close to their previous daily lows; at 2:00 p.m. EST on Thursday, the Dow Jones Industrial Average was down 8%.