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The Federal Reserve took two moves to try to calm “unusual disruption” in the U.S. Treasury markets on Thursday.
The Fed said it will lend $1.5 trillion to the short-term funding markets.
In a statement, the Fed also said it would add purchases of Treasury notes and bonds to increase its balance sheet. The central bank had previously been buying only $60 billion of T-bills each month.
The new polices were designed “to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the Fed said.
The changes came after consultation with Fed Chairman Jerome Powell and the Federal Open Market Committee.
Starting Friday, the Fed will purchase securities “across a range of maturities to roughly match the maturity composition of Treasury securities outstanding,” the statement said. The balance sheet purchases will continue into the second quarter.
In the short-term funding markets, the Fed said it will offer $500 billion in a three-month repo operation on both Thursday and Friday. It will also offer $500 billion in a one-month repo on Friday. The New York Fed added it would conduct one-month and three-month operations for $500 billion every week for the remainder of the month.
U.S. stocks recovered some of their steep losses on Thursday after the Federal Reserve announced its extraordinary funding actions in the wake of the selloff inspired by the economic impact of the coronavirus epidemic.
The Dow Jones Industrial Average DJIA, -7.51% was down more than 5% early afternoon, but had been down as much as 9.5% on opening which was its worst one day drop since the 1987 market crash.
