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Will Federal Reserve Extend Crisis Bond Buying?

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EDITOR NOTE: The M1 money supply just increased by $700 Billion in the last two weeks of November. On top of this, the Federal Reserve is poised to extend $120 Billion in debt purchases per month until the US recovers from the pandemic. More money printing means more dollar debasement. Unlike China, who recovered economically with much less fiscal and monetary stimulus, America essentially has to kill the dollar in order to save its economy. Something about this doesn’t sound right. As your purchasing power continues to sink, the good news is that your gold and silver holdings will continue to rise--as both constitute the only currency in America that holds real value.

The Federal Reserve is set to issue new guidelines extending its emergency bond buying program, as it grapples with the need for another monetary boost to support the U.S. economic recovery.

At this week’s meeting, U.S. central bankers are expected to broadly endorse language that says the $ 120 billion a month in debt purchases launched at the start of the pandemic will continue until the recovery meets certain conditions. according to seasoned economists and Fed watchers.

For now, the Fed says its bond purchases will only continue at their “current pace” over the “next few months” – a much more limited time frame.

If accepted, the change would make it more difficult for the central bank to take swift action to reduce its bond purchases, thus cementing its easy monetary policy for years to come. This change would complement its pledge to keep interest rates close to zero until inflation is on track to exceed 2 percent and the economy reaches full employment.

Further, the Federal Open Market Committee will be forced to consider whether more aggressive monetary easing through the asset purchase program is warranted.

With the rise in Covid-19 cases, the increase in layoffs and confusion on Capitol Hill over the prospects for fiscal stimulus, some economists believe the Fed may need to act now to honor its pledge to do more to support recovery if necessary. Last week, the European Central Bank increased the size of its bond purchases and extended their duration after the eurozone economy was hit by more infections and restrictions.

“We have a worse virus, more closures and more evidence that it’s impacting recruitment. Meanwhile, fiscal policy is on hold – we have no idea what we’re going to get, ”said Julia Coronado, economist at Macropolicy Perspectives. “I just don’t think it makes sense to come to the table with nothing in my hands.”

If the Fed decides to take more aggressive monetary action, the most likely possibility would be to shift the maturity of its debt purchases to longer-term bonds. So far, the buying has been weighted slightly towards the shorter end.

A much less likely option would be an increase in the overall value of debt purchases, which currently represent $ 80 billion in Treasury debt and $ 40 billion in agency mortgage-backed securities per month.

Fed officials have been reluctant to take such further steps. Last month, they said the asset purchase program as currently designed was effective and that they would only boost it if the economic situation changed.

Roberto Perli, an economist at Cornerstone Macro, said there were “a number of reasons” for the Fed to take stronger easing measures, including the need to offset growing pandemic risks and its own will to cause higher inflation. But he wasn’t sure the Fed would follow through, given the “we haven’t heard anything” from the main central bankers.

“It’s the right thing to do and I wouldn’t be surprised if they would, but it’s hard to make a strong appeal,” said Perli.

Some investors believe the Fed can afford not to take strong action on Wednesday, given that financial conditions have eased to levels seen before the coronavirus crisis. US stocks have hit new all-time highs in recent weeks, and borrowing costs for US businesses and homebuyers are still hovering at all-time lows.

According to Anders Persson, director of global fixed income investments at Nuveen, this positive market backdrop is likely to ease the pressure on the Fed to do more than change its forecast.

“They’ll keep this chip another time,” added Leslie Falconio, senior bond strategist at UBS Global Wealth Management.

Originally posted on USA-Vision

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