On the Fed’s Massive Intervention
The Fed announced unlimited QE and new credit facilities, blunting the systemic aspect of the Covid-2019 crisis. The S&P 500 ERP is near its peaks in the euro crisis and Global Financial Crisis, so with the Fed having made a pre-emptive move, it’s time to make another timid averaging-down bite. Unfortunately, the Fed took the heat off the Senate, where Democrats are blocking relief. But QE lubricates the legislative process by providing a funding path. It’s an experiment in “Modern Monetary Theory,” where we will just have to see whether the demand for money is sufficient to meet the new supply and keep inflation in check. Given the draconian response to Covid-2019, there will be costs – the important thing is to preserve the ability of the economy to bounce back rapidly and robustly.