The Fed Saved Financial Markets Without Really Doing Very Much

Corporate Finance & Restructuring

March 1, 2021

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This month marks the one-year anniversary of the COVID-19 pandemic in America that has so far claimed over 500,000 lives. The first confirmed case of COVID-19 virus in the United States was reported in Washington state in mid-January 2020, and community spread was occurring by February.

But the gravity of the situation and our unpreparedness to aggressively confront the virus became apparent to the public in March, at which point all 50 states had reported COVID-19 cases, and much of the country entered panic mode as state-mandated shutdowns or stay-at-home orders began. Nearly 4,000 COVID-19 related deaths and 190,000 confirmed cases in the U.S. were reported in the month of March 2020, with the White House then projecting that up to 240,000 Americans could die of COVID-19 even with most Americans staying home 1. Financial markets didn’t wait around for further details or refined COVID-19 projection models.

The S&P 500 plunged 24% in the first three weeks of March—an epic selloff — while corporate credit markets began to seize up. Leveraged credit issuance screeched to a halt in March. Little did anyone realize that financial markets would begin the recovery process that very month — enduring just a few weeks of pain — while Americans would have to contend with the ravages of the virus for the next year.

The Federal Reserve is widely credited with rescuing U.S. financial markets amid the early days of the pandemic, and rightly so. We can pinpoint the bottoming of equity and credit markets to a precise date: March 23, 2020 (Exhibit 1).


1: Coronavirus Updates, CBS News, April 2, 2020

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