A desperate U.S. Federal Reserve has unleashed what has been termed as a bazooka of measures to calm the markets in recent weeks but it could go even further and start buying equities in an effort to artificially prop up the market, according to a CNBC report.
The coronavirus pandemic has had a devastating effect on the global economy and the U.S. stock market has not been spared.
Market pundits have said that the idea of the Fed venturing into the stock market is not far-fetched as it has shown willingness to “go as far as it takes” to save the stock market and the economy at large.
“It is clear that they will go into whatever nook and cranny in the market that starts to choke,” Quincy Krosby, chief market strategist at Prudential Financial, told CNBC.
“We know that when you have choking in one part of the market, you have choking in another part of the market that leads to dislocation. As soon as you cross that line, you are now facing something else that you could conceivably buy,” he added.
The Fed is currently only allowed to acquire U.S. Treasuries and bonds with government backing. But in response to the current financial crisis, the Fed has moved to acquire corporate debt through exchange-traded funds.
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Former Federal Reserve Chair Janet Yellen does not think the central bank is in a position where it needs to buy equities. She does, however, believe that lawmakers could give the Fed more leeway in this regard in the future if need be.
“I frankly don’t think it’s necessary at this point … but longer-term it wouldn’t be a bad thing for Congress to reconsider the powers that the Fed has with respect to assets it can own,” Yellen told CNBC’s Sara Eisen.