The Federal Reserve takes action to quiet global financial markets

What happened today …

Today the Board of Governors of the Federal Reserve entered into a liquidity swap agreement with the Bank of Canada, the Bank of England, the Bank of Japan, and the European Central Bank for the purpose of injecting cash into foreign banks in Canada, the United Kingdom, Japan, and Europe.

A liquidity swap is an arrangement a central bank, in this case the Federal Reserve, sells currency to a foreign central bank at prevailing market exchange rates.  The central banks then lend these dollars to banks within their regions.  After a certain maturity date, in this case three months, the regional banks pay back their respective central banks and the foreign banks return the borrowed dollars to the Federal Reserve at interest.

The global pandemic resulting from the spread of the corona virus has taken a toll on global markets as countries order the shut down of large gatherings and workers are asked to work from home.  In addition travel restrictions put in place by various countries including the United States put a dampening effect on trade which has led to a fall off in global stock markets.

What does this mean for Atlanta?

The global support provided by the Federal Reserve may calm markets and provide to overseas buyers the credit and capital needed for importing goods and services from Atlanta businesses.  There may be resulting stabilization in interest rates compounding action last week by the Federal Reserve to cut its federal funds rate.

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