The vast and currently dysfunctional markets for US Treasuries, mortgages and corporate credit now have the ultimate buyer of last resort — the Federal Reserve.
Ever since the big stock market crash of 1987, investors have grown to depend on the US central bank coming to the aid of financial markets when they hit the skids. Now the central bank is well and truly “all in”, announcing a slew of new initiatives on Monday designed to buy time for an enfeebled financial system. Until now, the Fed implied, the system has been in no shape to withstand an escalating pandemic that has the US economy facing the biggest hit to growth since the 1930s.
Having failed to ease nerves over the past week with an expansion of its quantitative easing programme, the Fed has upped the ante to Buzz Lightyear territory. “QE infinity,” in the form of unlimited buying of Treasury debt and mortgage-backed securities, is just one aspect of the new approach.
