In a decisive decision from yesterday, the Federal Reserve announced its latest adjustment to its comprehensive monetary policy. The central bank would be invoking a credit mechanism, which was last used in the wake of the 2008 credit crunch as an instrument for the easy spread of liquidity.
“The Federal Reserve Board announced today that it will establish a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses. Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies.”
The rationale behind the move is influenced by the desire of the FED to accommodate the struggling property market in the US. The decision is essentially an alternative to the Italian government's decision from a few weeks back when the latter decided to temporarily freeze all mortgage payments of homeowners.
The FED aims to protect the housing market, but the means of achieving that are through monetary policy as opposed to fiscal policy. Direct liquidity stimuli are meant to be provided directly to American homeowners, renters and consumers as a whole.
Meanwhile, American stocks continued to plummet today, after Tuesday’s temporary rally, as the S&P500 dived to 2295.0, before correcting some of those immediate losses.
The index is currently attempting to break down and close below the crucial support level at 2345.0, which is also the 38.2 per cent Fibonacci Retracement level. The last time the support level there was tested was at the height of the US Government’s shutdown in December 2018.
Since then, the price has not been able to break below that dip; however, the mounding external pressures could prove sufficient enough to break the cycle.
S&P 500 1W Price Chart. Image source: Trendsharks ©, created with TradingView.com
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