The Federal Reserve capped off an unprecedented week of action on Friday by extending a lifeline to cash-strapped state and local governments that are about to borrow large sums as they deal with skyrocketing costs from coronavirus safety measures, the Washington Post reported. There has been a large selloff in municipal debt in recent days, driving up the borrowing costs for many states and localities that need to pay their bills. This was the ninth major action by the Fed last week to try to stabilize financial markets, prevent the downturn from worsening and keep credit flowing to companies and households. The Fed’s action Friday is a first step in that direction and is a new emergency aid that was not done during the 2008-09 financial crisis. The Fed will make loans available to financial institutions that can be secured by “high quality” state and local bonds. This will make owning these tax-exempt municipal bonds more attractive to big financial firms and should help ensure there is plenty of demand for these bonds as many states and cities begin to issue more debt in the coming weeks and months.
