The Fed Considers Buying A Wider Range Of Assets
On March 1st, Macro Watch uploaded a video entitled “Thoughts On The Coronavirus”. That video warned Macro Watch subscribers to be prepared for the Fed to take drastic measures to prevent a stock market crash. It raised the possibility that the Fed may even begin to buy stocks directly to push stock prices higher.
Today, March 6th, Boston Fed President Eric Rosengren, made a speech in which he said, in light of the Coronavirus and the possibility that the 10-year US government bond yield could fall to 0%, “We should allow the central bank to purchase a broader range of securities or assets. Such a policy, however, would require a change in the Federal Reserve Act.”
The Federal Reserve Act was changed in 1932, 1945, 1965 and 1968 to enable the central bank to create more credit whenever the need arose. It would not be at all surprising to see it changed again now to allow the Fed “to purchase a broader range of securities or assets” to prevent a stock market crash that would be sure to hurl the United States and the rest of the world into a severe recession or depression.
The stock market rebound off its lows on Friday after his remarks. His speech may push stock prices higher still on Monday, although that is uncertain given the speed at which the virus is spreading.
The Fed has been driving the economy by pushing up the stock market and other asset prices since 2008. If asset prices crash now, the impact on the global economy could be devastating. It would be naive to believe the Fed will not fight to prevent that from happening. Rate cuts and even more QE won’t be enough.
Therefore, investors should not be surprised if the Fed takes drastic action to prevent a stock market crash.
Here is the link to Rosengren’s speech:
Here is a link to a Bloomberg article covering the speech:
Below is the March 1st blog announcing the Macro Watch video, “Thoughts On The Coronavirus”:
In the Macro Watch video uploaded today, I share my thoughts on the Coronavirus.
How long it is likely to last.
How it has impacted the global economy to date.
How it is likely to impact corporate earnings, asset prices and the global economy during the weeks ahead.
This video also discusses the drastic measures policymakers may take to prevent a stock market free-fall.
It is not inconceivable that the Fed would begin to buy stocks directly to push the stock market back up.
If the markets continue to plunge, drastic policy measures should be anticipated.
Before the financial markets reopen on Monday, Macro Watch subscribers can log in and watch this video now. It is 14-minutes long with 29 slides that can be downloaded.
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