Congressman Jim Himes of Connecticut said the Federal Reserve’s response in the early days of the pandemic can serve as a model for future recessions.
He told a House committee this week that Fed programs like the Municipal Liquidity Facility and the Paycheck Protection Program helped to save the economy as businesses closed and the stock market suffered.
"The Fed’s commitment to supporting the economy itself helped calm the markets. Within days of the Fed announcing programs to bolster the corporate municipal bond markets, investors returned, liquidity increased and further disaster was likely avoided. We learned that the Fed could play a powerful role when it has the authority to make and execute plans," Himes said.
Himes also called on Congress to determine what improvements are needed to strengthen these programs.
Connecticut State Treasurer Shawn Wooden testified before Congress Thursday on how the federal reserve can better use emergency lending powers during the pandemic.
The Municipal Liquidity Facility, or the MLF, was established in April of 2020. It purchased up to $500 billion of debt from state and local governments. Wooden said it was key to stabilizing the economy at the beginning of the pandemic.
"The creation of the MLF provided critical support for issuer solvency by standing ready to purchase short-term notes from state and local governments in an extremely uncertain economic environment, thereby helping state and local governments better manage client cash flow pressures," Wooden said.
The facility stopped purchasing notes at the end of 2020. Wooden said the government should make the program permanent.
