May 25, 2020

I know we’re in a pandemic, but the Federal Reserve’s recent agenda is rather incredible.

The Federal Funds Rate is basically 0 percent. On top of that, COVID-19 fiscal stimulus will push our 2020 deficit to near $4 trillion.

The central bank is also going to buy unlimited amounts of U.S. Treasury securities to increase liquidity in the financial markets. This has never been done before. The signal is that, absent this push, we’d enter severe recession or worse.

But wait, there’s more.

We have a new round of quantitative easing. How much? The range given was $700 billion to an unlimited amount. So, to infinity and beyond.

There’s also a new credit facility for investment grade corporate bonds and their exchange traded funds. If you’re investment grade, the Fed will buy your debt issues. (What is that besides a bailout?)

Additionally, rules were tweaked so banks aren’t penalized and forced to tighten lending if capital ratios fall below regulatory minimums. No numbers? No problem.

There are also unspecified new programs to directly finance people and businesses with $350 billion. It’s called the Primary Market Corporate Credit Facility and serves to buy bonds and lend to big firms.

The clear message is the Fed will buy anything, even municipal debt (state bailouts?). The Bank of Japan and the European Central Bank have followed suit. Scary.

This last one isn’t the Fed, but it certainly qualifies as incredible.

Currently, in 38 states collecting enhanced unemployment benefits pays more than working. Keeping our economy strong has always been about incentives to work. This “enhanced” policy puts us in danger of an L-shaped recovery.

Again, I know it’s crisis time. Support is critical. But these moves have longstanding, perhaps permanent impacts.