(Reuters) – Investors fled to safety as worries about the coronavirus outbreak increased, leading to heightened volatility and requiring the Federal Reserve to respond rapidly to stem losses from a “synchronized global selloff” and to help markets function, a senior official at the New York Fed said Friday.
Uncertainty about the effects of the virus caused market liquidity to deteriorate, increased the demand for U.S. dollars and increased the cost of borrowing for households and businesses, said Daleep Singh, in his first public remarks since he became head of the markets group at the New York Fed earlier this year.
“The ominous reality was that a synchronized global selloff had taken on a life of its own, with little prospect for self-correction,” Singh said in remarks prepared for a webinar hosted by the Money Marketeers of New York University.
Singh recapped the steps the Fed has taken to help companies borrow by supporting the markets for commercial paper, corporate bonds and municipal bonds.
The Fed has partnered with several financial firms, including BlackRock, Pacific Investment Management Company (PIMCO) and State Street to set up some of the new liquidity programs quickly. Singh said Friday that the New York Fed will pay close attention to those working relationships to address potential conflicts of interest and to minimize risks.
“We will proactively identify and address conflicts of interest – real or perceived – for anyone working on the facilities,” he said.
Singh previously worked as a senior partner and chief U.S. economist at SPX Capital. He also worked at the Treasury Department from 2011 to 2017 in financial markets and as deputy assistant secretary for international affairs.
In his remarks Friday, Singh said the Fed will be transparent and help increase public understanding of its efforts to support markets and the economy. He said the bank is doing this by posting information online about eligible borrowers, the terms of the facilities and sharing answers to frequently asked questions.
“We look forward to engaging with our oversight bodies and those appointed under the CARES Act to ensure that the American people understand the steps we are taking on their behalf as faithful stewards of the public trust,” he said.
(Reporting by Jonnelle Marte; Editing by Chizu Nomiyama)
