Markets stocks

Will The Fed Buy Stocks? It’s Not Their ‘First Impulse,’ But You Never Know!

"My first impulse is that is not something we would entertain".

Jerome Powell would have been incredulous had you told him back in mid-2018 that by the second quarter of 2020, he and his colleagues would be forced to answer questions about the relative merits of the Fed buying stocks and cutting rates below zero. As hard as it is to believe, it was less than two years ago when Powell was busy piling rate hikes atop the tightening impulse from balance sheet run-off. Ultimately, he managed to engineer the single-largest tightening (roughly 550bps) of any cycle in modern history, if you measure from the lows on the shadow rate. (SocGen) Given that, it's hardly surprising that things went awry for emerging markets in the summer of 2018, and then for the developed world later that year. But when Powell began to reverse course early in 2019, he had no conception of the extent to which the Fed's U-turn would end up morphing into the biggest easing push ever witnessed in the US. That visual could simply be labeled "PANIC" and for many, if represents the end of the proverbial road. Yes, the balance sheet will continue to balloon, but we're in cartoon territory at this juncture, and when it comes to the policy rate, the market is likely to kee
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3 comments on “Will The Fed Buy Stocks? It’s Not Their ‘First Impulse,’ But You Never Know!

  1. Every time I hear about Jerome or Fed members poo pooing NIRP or equity purchases all I can think of is Powell’s “long way from neutral” statement. I’m sure they mean it (sort of) and it may not happen with the S&P kissing 3000, but if we see 2500 again this year all bets are off.

  2. It is likely only at this ‘unentertained’ stage that the prospect of Fed equity purchases is a significant boon for the indices. The prospect of the bid can be (and arguably already has been) profitably frontrun, but if the Fed ever finds itself actually buying, it would already be fighting a losing battle. This is not about firepower, which is unlimited, but rather sentiment. Unlike bonds, where the Fed is ostensibly seeking to control rates, stock purchases have no higher purpose: they exist to limit investor losses, with a fig-leaf of cover provided by allusion to ‘systemic risk’. Given time, few investors will want to own stocks that the Fed had felt compelled to buy, and any kind of orderly exit will become close to impossible. As with a number of unenviable market phenomena, Japan has already shown the way here.

  3. “… lacking participation from carbon-based lifeforms…”
    Is the true extent of carbon based participation reflected in the March lows that occurred as de-leveraging finished? Does that stake reside inordinately in relatively passive 401-k balances? What would be the outcome if the March lows were retested and or became a fixture of normal. What if the market goes lower?The question is not just for reelection. In 2008-09 there was little choice. Now there is little choice. MMT, once started, if you will, there will be little choice. A spiral to infinity? Is it Gandolph that you site, I believe?
    Confidence in a construct?
    Or collectively hunker down and do the work that leads to a better future?

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