Here Comes the Latest Addition to the Federal Reserve’s Squadron of Helicopters
June 16, 2020 (EIRNS)—Among the tidal wave of ever-new and more creative ways of attempting to bail out the bankrupt financial system, including all-out quantitative easing and more recently “helicopter money,” the Federal Reserve on Monday, June 15 announced it would start buying individual corporate bonds directly, on top of the exchange-traded funds it already is purchasing.
CNBC quoted Steven Friedman, senior macroeconomist at MacKay Shields saying that moving to a more aggressive bond-buying strategy may also reflect the Federal Open Market Committee’s view “that the economic recovery from the ongoing COVID-19 crisis will be an extended and challenging one, with credit markets requiring extensive support.”
An even more frank formulation: “What it does primarily is continues to push fixed income lower and tighter and helps prop up the stock market, which is the real issue here” said Patrick Leary, chief market strategist at Incapital. “It’s a reminder to the marketplace that the Fed is here with its balance sheet and is going to deploy that balance sheet to try to support markets and market functioning.”
Reuters quoted Robert Pavlik, chief investment strategist, senior portfolio manager at SlateStone Wealth LLC in New York: “It fuels traders to buy individual stocks and take on higher risk because the Fed has backstopped the bond market and kept a tighter lid on interest rates. ... The banks probably have a bunch of corporate debt on their balance sheets and now there’s a buyer for it. Someone’s going to be buying those bonds because the Fed is telling them it’s OK.”