Jerome Powell

The heads of the Federal Reserve and Treasury are urging passage of legislation that would replace Libor with the Secured Overnight Financing Rate in certain contracts. That would spare banks litigation over trillions of dollars of contracts when Libor expires in 2023.

As government debt swells, the outer limits of what the U.S. can safely borrow are becoming less and less clear.

The Federal Reserve is credited with containing damage to the financial system from the coronavirus pandemic, but experts say the limits of the central bank’s power to prop up the economy will likely become more apparent in the new year.

The central bank will prolong the life of the Commercial Paper Funding Facility and three other programs while returning congressionally approved funds for five separate facilities that will shut down Dec. 31.

The Trump administration has compelled the Federal Reserve to shut down the Main Street Lending Program and other facilities that aid banks’ pandemic relief efforts, but President-elect Biden’s Treasury nominee could help turn the spigot back on.

The statement comes after multiple small and midsize institutions earlier this year warned the agencies that the secured overnight financing rate was ill-suited to them.

Defaults have been milder than expected thanks to government relief and stricter underwriting. But with the crisis dragging on and policymakers unable to agree on a stimulus plan, loans to highly indebted companies remain at risk.

The Financial Stability Oversight Council said the mortgage giants may need a bigger capital cushion than their regulator has proposed, but stopped short of designating them as “systemically important financial institutions.”

Commercial real estate companies are among those left out of the Federal Reserve’s middle-market relief program, but House members said they need government-backed financing to navigate the pandemic as much as anyone.

The central bank said it would keep interest rates at current levels through at least to help the U.S. economy recover from the coronavirus pandemic.

Federal Reserve Chair Jerome Powell announced a new approach to monetary policy Thursday that takes a more relaxed stance on inflation and on its view of how low U.S. unemployment can go.

Many commercial property owners are locked out of existing coronavirus relief by financing terms that bar them from taking new loans. Under a House bill, they would receive government-backed equity investments.

The Fed chairman updated senators about the agency's new credit facility for midsize firms struggling in the pandemic. He also left open the possibility of additional stress tests to gauge the industry’s coronavirus response.

The central bank is only now nearing the launch of the credit facilities after the effort was announced in April. But Chairman Jerome Powell said loans have been available through other means.

The central bank will increase support for credit issued through the Main Street Lending Program while providing midsize firms with more flexibility on the amounts they receive.

The head of the U.S. central bank said its emergency credit programs were not designed to prop businesses up over the long term.

The central bank will disclose information on a monthly basis about its Term Asset-Backed Securities Loan Facility and its Paycheck Protection Program Liquidity Facility.

The agency is being methodical in its rollout of the Main Street Lending Program in hopes of avoiding missteps that followed the launch of other coronavirus relief efforts. But observers say delaying aid brings its own risks.

The Federal Reserve chairman pledged to use every tool at the central bank's disposal to limit the economic fallout from the coronavirus and urged lawmakers to take further action.

The central bank and other agencies have come under pressure to be transparent about their use of funds authorized by the recent pandemic rescue law.