General Frequently Asked Questions
Q: What is the Federal Reserve doing to help households, businesses, and the U.S. economy at large through this crisis?
A: We are working to help ensure credit keeps flowing through the financial system to households and businesses during this difficult time. Interest rates are near zero, which makes it easier for consumers to borrow and for businesses to stay operating and keep workers on the job. Various Federal Reserve lending and funding facilities are supporting small and medium-sized businesses and their employees, and also states and localities. Other lending facilities are offering further support for households and businesses by keeping credit flowing smoothly throughout the financial system.
Q: What is the Main Street Lending Program, who is eligible, and how can I apply?
A: The goal of the Main Street Lending Program is to keep credit flowing to small and mid-sized businesses and nonprofit organizations that were in sound financial condition before the coronavirus pandemic but now need financing to maintain their operations. It is targeted to firms that are not large enough to obtain financing through capital markets but cumulatively employ many millions of workers and are a large part of our economy.
Working with banks, the Main Street Lending Program will offer loans from $250,000 up to $300 million to eligible businesses. To give borrowers more flexibility, the loans must be paid back over five years, with principal payments deferred for two years and interest payments deferred for one year.
Eligible businesses must have significant operations and a majority of employees in the United States and either annual sales of no more than $5 billion or no more than 15,000 employees. Companies receiving loans through the Small Business Administration’s Paycheck Protection Program are also eligible for Main Street lending. Details on loan options, terms, and eligibility are available here.
Details on the Board’s proposed loan options, terms, and eligibility for small and mid-sized nonprofit organizations are available here.
Borrowers must apply through a bank that participates in the Main Street program. Lenders interested in participating can find more information here.
Q: What is the Federal Reserve doing to directly assist state and local governments that are facing financial difficulties caused by the coronavirus?
A: The Federal Reserve, in collaboration with the U.S. Treasury, has created the Municipal Liquidity Facility (MLF) to purchase new debt issued by states, cities, and counties that are facing tax shortfalls because of the Covid-19 pandemic.
State and local governments are facing higher spending to fight the pandemic, lower tax revenue, and delayed income tax filing. These effects are threatening their ability to maintain essential government services. The purpose of the MLF is to promote a healthy market for municipal securities by acting as a backstop source of short-term financing. To help states and localities finance their operations and maintain services, the Fed will purchase up to $500 billion in new short-term debt issued by states, cities, and counties.
The purchases will be made by an entity created by the Fed and Treasury, which will hold the securities it purchases until they are sold or mature. The facility will be able to purchase up to $500 billion in debt and is scheduled to stop purchasing new debt on December 31, 2020. Broadly speaking, it will buy debt issued by the 50 U.S. states and the District of Columbia, cities with more than 250,000 residents, and counties with more than 500,000 residents. At least two cities or counties in each state will be eligible, regardless of population, and governors will also be able to designate two other publicly funded entities, such as transit authorities, to participate directly in the MLF. Eligible entities can, in turn, channel funding to smaller issuers, such as individual hospitals. Debt issuance for the program cannot exceed 20 percent of a state, city, or county’s fiscal year 2017 general revenue.
Q: I hear that the Fed has cut interest rates to zero, but I do not see that reflected in my mortgage or credit card bill. How does the lower interest rate affect me?
A: The Federal Reserve sets a key interest rate, called the federal funds rate, which is the rate banks charge to each other for very short-term loans. The Federal Reserve lowered the target range for the federal funds rate to 0 to 1/4 percent. By lowering the target range, the Federal Reserve pushes down borrowing costs to help consumers and businesses handle the financial challenges posed by the coronavirus.
We have also acted with the goal of stabilizing and supporting key credit markets—including auto loans, mortgages, and small business loans—that are important to households and businesses. Improving the functioning of credit markets and lowering the federal funds rate generally do affect interest rates for various types of loans, but the Fed does not dictate the rates that banks and other lenders charge. Your lender can tell you about how rates on your loans may change.
Q: The Federal Reserve is pumping trillions of dollars into markets and banks. How does that help small businesses and the people who most need help?
A: The U.S. economy depends on a safe, stable, and sound financial system that consumers and businesses can rely on. By lending to banks and other institutions and keeping the wheels of the financial system turning, the Federal Reserve is trying to ensure that consumers and businesses have access to credit. Through our actions, we are working to stabilize credit markets and lower borrowing costs for state and local governments, homebuyers, and other consumers, as well as small businesses. We all have a stake in a healthy economy and a stable financial system, and the Fed’s recent actions are aimed at restoring that health and stability.
Q: Isn’t the Fed’s lending to banks just a giveaway to Wall Street?
A: No. We help households and businesses by lowering borrowing costs and supporting jobs, and by making sure credit keeps flowing though the financial system. We work through banks and financial markets to achieve these goals, and this benefits everyone that is part of our economy. The Federal Reserve is encouraging banks to borrow from us so they are able to lend more to those who need it. And the lending we are doing is not a giveaway; it comes with conditions. Banks put up collateral in exchange for Federal Reserve lending, which is repaid in the near term with interest.
Q: Why is the Federal Reserve providing dollars to foreign central banks?
A: Our only responsibility is to the United States and its people. Sometimes, though, economic problems in other countries, particularly in foreign financial markets, can spill over to the United States. To prevent that, the Federal Reserve has arrangements with other central banks to help stabilize our financial system and support our economy. Those arrangements involve the exchange—on a temporary basis—of dollars for the foreign central bank’s currency. After the temporary period, the transaction is reversed. These transactions do not impose costs or risks on American taxpayers.
Q: Why is the Fed giving cheap loans to banks? What is the "discount window?"
A: The Federal Reserve plays an important role in supporting the functioning and stability of the U.S. banking and financial system. With the advent of the coronavirus, the Fed is working to address the demand for shorter-term funds by encouraging a wide range of banks to take out loans through its “discount window.” The name refers to those days when such loans were dispensed at a special teller’s window at the Fed’s regional Reserve Banks. Banks with sound finances that can post collateral are eligible for short-term loans from the discount window for up to 90 days. Our program of providing discount window loans to banks is designed specifically to enable the banks to make lower-cost, longer-term loans to households and businesses.
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