By Matt Scuffham, Jessica DiNapoli and Pete Schroeder

WASHINGTON (Reuters) – Members of an influential financial markets advisory panel want the U.S. Federal Reserve to aggressively expand large-scale asset purchases and reinstate a 2009 crisis-era facility to support lending to consumers and small businesses, according to two people with knowledge of the discussions.

In recent days, the central bank has taken emergency measures to shore up the U.S. economy during the coronavirus pandemic, slashing interest rates and resurrecting 2008-crisis era programs to boost liquidity, including reprising its so-called quantitative easing (QE) program.

But members of the Treasury Borrowing Advisory Committee believe the central bank will need to take further drastic action to get credit into the hands of small businesses and American households who need it most. Members of the TBAC, which advises the Treasury on federal debt issuance, speak regularly with Fed and administration officials about financial policy.

One of the sources said he and other members of the committee has pushed in recent days for the central bank to enlarge its QE program beyond the $500 billion of Treasury bills and $200 billion of mortgage-backed securities purchases it announced on Sunday.

He added that TBAC members want the program to be more focused on restoring liquidity to mortgage backed-securities (MBS) markets in order to help lower mortgage rates for Americans already feeling the strain from the disruption, they say.

A lack of liquidity in the MBS market typically makes it difficult for originators to bundle and sell the loans, which in turn tightens mortgage lending and drives up rates.

The second source said he expected the Fed to start buying more Treasuries and mortgages in coming days, adding the current target may be met by the end of next week.

Indeed, the New York Federal Reserve – the market operations arm of the Fed system – on Friday added $15 billion to Friday’s MBS purchase operations and said it would buy $100 billion of MBS by next Friday, putting it on pace to hit the current MBS program limit by month’s end.

“What we expect from the Fed, once … measures have largely proven sufficient to restore proper market functioning, is accommodative monetary policy, sizable QE program,” he said.

The Fed, which purchased a whopping $4.5 trillion Treasuries and mortgage-backed securities during its post-crisis QE program, left the door open to expanding Monday’s new program saying during its emergency Sunday briefing it was buying “at least” $700 billion of bonds.

One of the sources said there may need to be trillions more of quantitative easing.

The Fed in Washington declined to comment on Friday, but regional Federal Reserve bank chairs have told Reuters this week that they are open to more steps to shore up the economy.

The two sources also said momentum is building for the central bank to revive another crisis-era program called the Term Asset-Backed Loan Facility (TALF), which operated from March 2009 to June 2010 get credit into the hands of households and small businesses.

If revived, that program would allow the Fed to dish out cheap cash loans to holders of asset-backed securities based on bundles of consumer and small business loans. During the crisis, the New York Fed lent $200 billion against such asset-backed securities, supported by $20 billion in credit from the U.S. Treasury.

“We believe there is a clear justification for the return of the Term Asset-Backed Securities Loan Facility given its support of consumer lending markets,” Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading, said in a research note this week.

Reviving TALF would require sign off from the Treasury Secretary Steven Mnuchin, seen as a low hurdle in the current crisis environment. The Treasury did not immediately respond to a request for comment on Friday.

Boston Fed President Eric Rosengren suggested earlier this month in a speech that the Fed should consider expanding the assets it buys in its QE program to include high-grade corporate bonds, a move that would require approval from Congress.

“Liquidity programs such as the TALF serve a clear purpose, have a nearly immediate impact, and carry less political and operational baggage than other forms of intervention,” said Boltanksy.

U.S. Treasury panel wants Fed to expand purchases, revive crisis-era credit facility: sources