Comments from the Fed's Rosengren
They're going to be buying stocks by the end of this.
- If coronanvirus causes Fed to reduce interest rates to near zero, US 10 year cold follow close behind
- If 10-year rates near zero there will be little room for Fed to lower rates through QE
- Situation would raise new challenges for the Fed
- Such an approach should require an explicit guarantee with the US Treasury to indemnify the Fed against losses
- In that case, the Fed should be able to buy a larger range of assets or securities
- Negative rates would harm banks, rejects them
- Full text
The text itself is reflecting on crisis ideas from Marvin Goodfriend and how they could be applied now (or in a crisis).
- Takeaway: In a situation where both short-term interest
rates and 10-year Treasury rates approach the zero lower bound, allowing
the Federal Reserve to purchase a broader range of assets could be
important.
Excerpt: "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."
Maybe, just maybe, the Fed should stop trying to manipulate markets. There have no power against a virus, let the markets work it out for once. Sure, things will get ugly but buying even more assets isn't going to make the virus go away. This is insane.
