(Reuters) - The Federal Reserve’s emergency lending facilities helped stabilize markets after anxiety over the coronavirus sparked volatility in March, and the central bank stands ready to adjust its approach if necessary, a senior official at the New York Fed said on Wednesday.
While some of the programs the Fed set up to help keep credit flowing to households and businesses had low usage, the backstops still helped to improve market functioning, said Daleep Singh, head of the markets group at the New York Fed.
A high level of uncertainty over the outlook means that the central bank needs to stay vigilant, he said in prepared remarks.
“We need to be watchful of banking sector resilience in the face of potential waves of nonperforming loans and bankruptcies that could challenge asset quality,” Singh said. “All of this is to remind us of what we already know: there remains tremendous uncertainty about the path ahead, and so we must stay humble in the face of ongoing risks and resolute in our commitment to adapt as needed.”
The Fed is adjusting its approach as market conditions change, Singh said. For example, the pace of purchases through the Secondary Market Corporate Credit Facility has slowed to $200 million a day from $300 million daily and could be reduced further, he said.
“If market conditions continue to improve, Fed purchases could slow further, potentially reaching very low levels or stopping entirely,” Singh said, adding that would not mean an end to the program. “Should conditions deteriorate, purchases would increase.”
However, the Fed is limited in the ways it can support the economy, he said.
“We’re not authorized to grant money to particular firms or households, we can only make loans,” Singh said during a moderated discussion. “There will be entities that need direct fiscal support.”
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama