- Fed speakers are doing their best to raise easing expectation as much as they possible can.
- FOMC member Rosengren has even suggested that the U.S. central bank could start buying stocks, a violation of its mandate.
- With another rate cut almost priced in for the upcoming March meeting, Jerome Powell’s sudden ultra-dovishness seems suspicious.
The Federal Reserve is apparently so worried about coronavirus they are talking about doing the unthinkable. Namely, blowing up the Federal Reserve Act to be able to dive into equities to try and pump a struggling stock market. It’s all a bluff.
President Rosengren Suggests Fed Could Buy Stocks
On a nervy Friday, where there were a number of rather curious Fed speakers, it was Boston President Eric Rosengren who took the cake.
Confirming an increasingly popular view that cutting interest rates is meaningless in the face of a global health crisis, Rosengren has raised the specter of the U.S. central bank changing its mandate to invest in the stock market.
The Fed boss considered a situation where there is no longer any market-pumping ammunition left, stating,
In such a case, as Marvin highlighted in his 1999 article, 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. … Alternatively, the Federal Reserve could consider a facility that could buy a broader set of assets, provided the Treasury agreed to provide indemnification.
Although this sounds like an innocuous statement, to many deficit hawks this is like a politician suggesting they change the first amendment to allow for defamation and fraud.
Japan Is The Poster Child For Failed Central Bank Policy
To be clear, it’s not that central banks would never purchase stocks. The Bank of Japan is one of the top owners of stocks in Japan.
Unfortunately, the debt-laden, deflation-addled economy that was once the envy of the world is the poster child for failed…