As central banks intervene to calm markets, few see solution

Traders Edward Curran, left, and Jonathan Mueller work on the floor of the New York Stock Exchange, Thursday, March 12, 2020. The deepening coronavirus crisis is sending stocks into another alarming slide on Wall Street, triggering a brief, automatic shutdown in trading for the second time this week. (AP Photo/Richard Drew)
Traders Edward Curran, left, and Jonathan Mueller work on the floor of the New York Stock Exchange, Thursday, March 12, 2020. The deepening coronavirus crisis is sending stocks into another alarming slide on Wall Street, triggering a brief, automatic shutdown in trading for the second time this week. (AP Photo/Richard Drew) (Copyright 2020 The Associated Press. All rights reserved)

WASHINGTON, D.C. – The Federal Reserve and the European Central Bank moved Thursday to try to calm financial markets and restore some degree of confidence. It didn't quite work. The central banks are facing a crisis only partly responsive to the medicine they can provide.

The Fed sought to ensure that the U.S. Treasury bond market — the world's largest — can operate smoothly as demand for bonds spikes with investors desperately seek safe assets amid the carnage in stocks. The ECB sought to stimulate the European economy, which the coronavirus outbreak appears on the verge of sending into recession.

Decidedly unimpressed, traders sent the stock market into its worst plunge Thursday in more than three decades.

The primary tools of central banks — lower interest rates and easier access to credit — aren't well-suited to address a crisis caused by a pandemic that has frightened consumers away from traveling, shopping or gathering in group settings. Economists are increasingly calling for governments to take the lead, through targeted loans to businesses, greater help for cash-strapped workers — particularly Americans without access to sick leave — and support for virus testing and other health measures.

On Thursday, the Fed unveiled a massive short-term lending program to try to help smooth trading in U.S. Treasurys. Through the Federal Reserve Bank of New York, it will provide at least $1.5 trillion on Thursday and Friday for banks that are willing to swap short-term Treasury securities for cash. An additional $500 billion will be made available Monday.

The program will continue at about $1 trillion per week after that. The lending won't all be cumulative. The loans will be paid back after one and three months.

And not all the money will necessarily be lent. It depends how much banks decide to borrow against the available funds.

The Fed also said it will broaden its $60 billion Treasury purchase program, launched last fall, from just short-term bills to all maturities, including 30-year bonds.