MUFG Research discusses the latest changes introduced by the Fed to the terms of the Main Street Lending Program.
"Yesterday, the Fed announced some changes to the terms of the Main Street Lending Program that will make it more accessible and widely used. There were concerns that conditions were too restrictive and hence would not have the intended positive impact. Under this program the Fed through banks will be lending directly to mid-sized companies. The crucial change is that the lending bank can now sell 95% of the loan to the Fed as opposed to the original 85%. With a larger portion of the risk," MUFG notes.
"Our view on this is of course this is good news but it is not yet clear how popular the program will be given it involves appetite for taking on debt. The changes certainly give it a better chance and the timing of the changes is a positive in that it is a sign of there being no let up by policymakers. We are now at a crucial time with the US economy beginning to emerge from lockdowns. The danger is better economic data diminishes policymakers urgency to act that could undermine the recovery.
For the dollar, we see little impact given this has come just ahead of the policy meeting tomorrow with policy guidance a crucial factor in near-term dollar direction. We expect caution and a message of continued aggressive easy policy which should keep the dollar on a weaker footing," MUFG adds.