The Buyer of Last Resort: What will the Federal Reserve do next?

The Federal Reserve money printers continue to go “brrr” as it was announced yesterday the Fed is expanding its municipal bond-buying program as it will buy $500 billion worth of state and local government bonds. This is truly unprecedented as the Federal Reserve will now buy debt from counties and states with populations of at least 500,000 and cities with 250,000 residents or more.

Eighty-seven cities have populations above 250,000 as of 2018 and 140 counties that have populations above 500,000 as of 2019, according to Census Bureau statistics.

It is crazy how things have evolved these last few years as former Fed Chairman Janet Yellen said in 2017 that unwinding the balance sheet would be like watching paint dry.

Was that prediction ever wrong.

So far, the Fed’s QE program has been so aggressive that it already exceeds the 2013 start of QQE, which was conducted by the Bank of Japan. By the end of Q2, it is projected that the Fed purchases will exceed anything any other central bank has ever done.

Since the coronavirus shut down the American economy, the Fed Balance sheet has gone parabolic with its balance sheet expected to reach ten trillion by the end of 2020, according to a Reuters poll:

As the money printers continue to go crazy, Treasury Secretary Steven Mnuchin said this morning that it is “highly unlikely” the Federal Reserve starts buying stocks.

It’s something worth monitoring as who would have ever thought the Fed would be buying junk bonds right now? Personally, I think the Fed does indeed start buying stocks, which would not be the first time a central bank has purchased equities.

The Bank of Japan has done it, alongside the Swiss National Bank. If the Fed does dip into buying stocks, every single financial asset in the United States will have the Federal Reserve as a backstop.

How’s that for free markets?

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