The U.S. Federal Reserve is already playing the stock market indirectly by accepting stocks as collateral from banks for short-term loans.
A growing number of analysts expect the Fed to start buying stocks itself if the U.S. economy weakens more significantly.
“If there were any [major] dislocations, [the Fed] will go into whatever nook and cranny in the market that starts to choke,” said Quincy Krosby, Prudential Financial’s chief market strategist.
The action would require Congressional approval, but the Fed already has signaled its readiness to play the market.
“We should allow the central bank to purchase a broader range of securities or assets,” said Eric Rosengren, president of the Boston Federal Reserve Bank.
The Fed already has ventured well beyond its usual conservative purview.
It has cast off first one, then another, limit on the amount of treasury securities it will buy. It also is now buying commercial paper – in effect, making short-term loans to businesses.
“There’s a reason why the government has not wanted… the central bank owning risk assets in the past,” said Laura Goodwin, portfolio strategist at New York Life Investments. “But if a liquidity crisis turns into a solvency crisis and we still don’t have the facilities coming in to support the economy… you could see the Fed be creative.”
The Fed would be most likely to enter the equity market through an exchange-traded fund, or ETF, which bundles stocks of selected companies or specific sectors.
An ETF is considered a passive investment and would remove the Fed from the business of trading – picking and tracking individual stocks and trying to time the market for best results.
The Bank of Japan has been an equity player at home for more than a year, ending 2019 with holdings worth $256 billion in ETFs.
TRENDPOST: Without a bit of outrage or a mention of disgust, in full view of the American public, it has become perfectly acceptable for the Federal Reserve, in effect, to steal money from taxpayers and pump it into a gambling casino, a.k.a. stock markets to bail out trading houses, hedge funds, private equity groups, banksters, etc., in pure violation of what the media and politicians call a “capitalistic” nation.
Clearly, as evidenced by the Fed’s action and the latest government bailout scheme, America = Socialism for the Rich, Capitalism for the Workers of Slavelandia.
