Mar 13, 2020 - Economy

The Fed's $1.5 trillion injection may be just the beginning

Data:; Chart: Axios Visuals
Data:; Chart: Axios Visuals

The Fed's actions on Thursday appear to have had a significant impact on the bond market and the currency market, where the dollar has reversed its slide against most major currencies after touching monthslong lows earlier this week.

The state of play: The dollar index, which measures the greenback's value against six global peers like the euro and Japanese yen, rose 1% Thursday.

Where it stands: The inability of Congress and the White House to deliver on a fiscal stimulus plan has not come as a complete shock to most observers. And if they aren't able to get it together, the Fed is not completely handcuffed, analysts say.

  • The trillions of dollars it has pledged to help markets so far could be a drop in the bucket.

What they're saying: Julia Coronado, president of MacroPolicy Perspectives, points out that the Fed could invoke what it terms "unusual and exigent circumstances" and begin accepting things like corporate bonds as collateral for cash.

Plus, banks have called for the Fed to roll back regulations and they are listening, Vincent Reinhart, a former Fed researcher and current chief economist at Mellon, tells Axios in an email.

  • "Under the radar, Vice Chair [Randal] Quarles is likely easing supervisory policy to encourage lending.”

The big picture: Central bankers and economists have argued forcefully over the past year that "unprecedented policies will be needed to respond to the next economic downturn," as members of the BlackRock Investment Institute put it in August.

  • The BlackRock report was authored by former Fed vice chair Stanley Fischer, former Swiss central bank chief Philipp Hildebrand, former Bank of Canada deputy governor Jean Boivin and other ex-central bank leaders.

The intrigue: The paper called on policymakers to introduce "helicopter money," which would essentially mean central banks giving money directly to the public.

Why it won't' happen: Helicopter money would mean the Fed taking the extraordinary step of going over the head of America's duly elected politicians to take action.

  • If enacted, it could give Congress the right to end the Fed — the very antithesis of everything chair Jerome Powell has been fighting for since he was confirmed.

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