The muni bond market is worth nearly $4 trillion, but the Fed has been reluctant to jump in.
Over the last month, the Federal Reserve has made unprecedented interventions in nearly all corners of the American economy in an attempt to stem the damage caused by the coronavirus—it’s cut rates to nearly zero, stepped in to backstop a $350 billion emergency small business loan program, and purchased billions of dollars worth of government debt and mortgage-backed securities—but when it comes to state and local finances in crisis, the Fed has been reluctant to intervene.
Plus, the Fed is under pressure to remain relatively independent in its interventions: “It would be very problematic for the institution and its credibility to decide between New York and Montana,” Mark Spindel, an investment manager who co-wrote a history of the Fed,The $2 trillion federal rescue package includes provisions that allow the Fed to purchase muni bonds with maturity dates longer than 6 months through a $454 billion fund and authorizes it to lend directly to municipalities, but the...
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