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The USA has introduced some extraordinary measures in its efforts to deal with the economic fallout from the pandemic. Not least amongst them are the unprecedented lending facilities that have been made available by the Federal Reserve. The Central Bank announced that it would make a staggering $2.6 trillion dollars available as part of its package. As of 29 May, less than 4% of that amount had been accessed. Whilst the figures underlying this percentage are still large at some $96 billion it is still a very small proportion of what is available. This comes against the backdrop of markets which are starting to reopen and rise in value. They are a long way off their pre-pandemic levels as yet but there has been a steady recovery apparent for a few weeks now. In a week that the New York Stock Exchange physically reopened for business, with traders turning up for work dressed not so much in designer suits as in face masks and with Perspex screens protecting them as they do business, there is clearly some investor confidence bounce-back in place.

Amongst the measures it has taken, the Fed has announced that it will begin buying corporate bonds and ETFs (Exchange-traded Funds) that track the market. This has led to a response which can be summed up according to the Financial Times as causing 'a flood of clash to flow into the asset class'. One ETF alone attracted interest to the tune of $49 billion dollars. Yields on corporate bonds, which move inversely to price, have declined with the average yield falling to 2.54% down from 4.7% at the peak of the impact of the crisis in March. This in itself is another sign of confidence that the markets will eventually emerge from the pandemic towards some kind of normality. It is of course notoriously difficult to predict with confidence that pre-pandemic levels will eventually be returned to but given that economics is intrinsically linked to psychological factors such as investor confidence it is nevertheless an encouraging sign.

Given the low take-up of the emergency funding offered by the Fed and the fanfare that accompanied its launch, the question might be asked as to whether or not the scheme has been worth it. Analysts in response suggest that it emphatically was. Of course the $96 billion of funding already issued is not insignificant although just a fraction of what was potentially available. But market analysts have suggested that the real benefit of having these funds available was that they were there in the first place. They have commented that this has had a very significant psychological effect on investor and business confidence. The effect of the programme in other words is more psychological than financial. The emergency funding has in the event taken on the function of a safety blanket. Just because it has not been to a large extent needed it does not mean that it was not a good idea to have it available just in case.

Wayne Bartlett is an author for accountingcpd. To see his courses, click here.

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