"The U.S. economy was in the midst of the longest
post-war economic expansion, with historically low
levels of unemployment, prior to the onset of the
COVID-19 pandemic earlier this year. The global
pandemic not only brought about a public health
crisis but also caused a contraction of economic
activity at an unprecedented pace. Initially, the
pandemic reduced consumer spending, slowed
manufacturing production, and led to widespread
business closures. The unemployment rate surged
from 3.5 percent in February to a record high of
nearly 15 percent in April. Since then, extraordinary
measures undertaken by policymakers have
succeeded in arresting the decline in economic
conditions, initiating a recovery and lowering the
unemployment rate to 7.9 percent as of September.
However, a protracted virus outbreak poses
downside risks that can slow the recovery and even
prolong the economic downturn."
...
"With cash flows impaired due to the COVID-19
pandemic, many businesses may be challenged to
service their debt. Since March, nearly $2 trillion in
nonfinancial corporate debt has been downgraded,
and default rates on leveraged loans and corporate
bonds have increased considerably. The growing
number of bankruptcy filings could stress resources
at courts and make it harder for firms to obtain
critical debtor-in-possession financing. It could also
prevent many firms from restructuring their debt
in a timely fashion, potentially forcing them into
liquidation."
...
"Money market funds (MMFs) offer shareholders
redemptions on a daily basis while holding many
short-term assets that are less liquid, especially in
times of stress. Stresses on prime and tax-exempt
money funds in March revealed continued structural
vulnerabilities, which led to increased redemptions
and, in turn, likely contributed to the stress in
STFMs. Among institutional and retail prime MMFs,
outflows as a percentage of fund assets exceeded
that of the September 2008 crisis. Outflows abated
after the Federal Reserve announced support for the
CP market and MMFs."
