MOAB: Federal Reserve unleashes unlimited quantitative easing to fight COVID-19 market crash
March 23, 2020 By Andrew Moran Leave a Comment
The Federal Reserve has fired off the mother of all bombs: unlimited quantitative easing.
Before the opening bell on Monday, the U.S. central bank announced that it is prepared to purchase assets “in the amounts needed” to contain the economic fallout from the Wuhan Coronavirus pandemic. The Fed is essentially abandoning its $700 billion QE limit and going all in on rescuing financial markets from ruin.
The Eccles Building also revealed new lending initiatives worth up to $300 billion for the entire banking system. An interesting turn of events, the central bank will scoop up corporate bonds through secondary markets and exchange-traded funds (ETFs).
Meanwhile, the New York Fed Bank announced that it would purchase $75 billion of Treasury securities and another $50 billion of agency mortgage-backed securities every business day this week.
Surely, the market soared to all-time highs on the news…
Nope.
While there was an initial bump, the leading stock indexes plunged: the Dow Jones fell 300 points, the S&P 500 dropped two percent, and the Nasdaq dipped 0.4 percent. The benchmark 10-year Treasury note declined to 0.742 percent. U.S. crude oil prices have been seesawing all morning. Gold and silver are skyrocketing, 3.2 percent and 4.5 percent, respectively.
The only thing left for the Fed to do is bring interest rates to subzero. Then what?
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