The Federal Reserve is seeing high demand for its business loan initiative put in place to help smaller companies get through the coronavirus-induced recession, Boston Fed President Eric Rosengren said Friday.
As the Main Street lending facility wraps up its first full week of operation, Rosengren reported brisk interest on the borrowing side amid what looks like tepid interest from banks thus far.
"Of course there is a learning curve, but we are seeing tremendous interest in the loans from businesses," he said in prepared remarks. "Lenders are determining how they'll participate in and communicate about the program. Borrowers will need to persist during this ramp-up phase."
The Boston Fed is implementing the program aimed at providing loans to companies with fewer than 15,000 employees.
Though it was announced early in the current crisis, getting the program off the ground has been a challenge as the Fed has listened to feedback from the banking and business communities. The Fed recently announced modifications to the initial plans — maximum and minimum loan sizes were changed to provide funding from $250,000 to $300 million, maturities were extended from four to year years, and borrowers now will pay no interest in the first year and not have to pay principal for two years.
In addition, the Fed now will now buy 95% of the loans, an effort to ease the risk for participating banks.
Rosengren said the Fed has heard from "over 200 financial institutions, large and small" that have registered to participate. There are nearly 4,500 commercials banks in the U.S.
Despite what appears to be a fairly low level of bank participation in the first week, Rosengren said he remains "very positive about the promise of the program in helping local businesses and lenders maintain vital business credit during these very challenging economic times."
The central bank official said such programs as well as the other measures the Fed has taken will be important as the economy struggles to get back on its feet.
Rosengren has one of the more pessimistic forecasts among Federal Open Market Committee officials, expecting that the unemployment rate "will remain in double digits through the end of the year." The median Fed projection is for a 9.3% rate.
A principal reason for his pessimism is fear that some states have relaxed social distancing rules too soon and risk more intense spread of the coronavirus.
"In sum, given the death toll of the virus even with the economic lockdown, I see a substantial risk in reopening too fast and relaxing social distancing too much," he said. "And even if it turns out that the response to the pandemic has been calibrated appropriately, the forecast from FOMC participants highlights the need for additional highly stimulative monetary policy, including the use of Federal Reserve emergency lending facilities."
Like other Fed officials, Rosengren said he expects both the central bank and Congress will need to do more to help the economy.