Macro Digest: Fed launches massive initiative to backstop the system

Macro

Steen Jakobsen

Chief Investment Officer

Summary:  The Fed just made one of its most important moves in responding to the fallout from the Covid19 crisis by announcing what amounts to a backstop of the US financial system, with new purchases aimed at addressing the massive credit crunch in particular.


The US Federal Reserve just announced a massive new programme to backstop the US financial system, by far the most important move yet by the Fed to bring relief. The important thing here is that the Fed is ensuring that the marginal cost of capital is anchored after the recent explosion in credit spreads - hence the focus on credit-impacted instruments in its new menu of asset purchases.

This is the first step in controlling yields all along the US treasury yield curve - full yield-curve-control is likely forthcoming. US equity futures and long treasuries were heavily bid in immediate reaction to the initiative.

The new FOMC statement.

Details of the new plan, which includes unlimited QE, purchase of commercial MBS, corporate debt and more.

 

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