Jun 10, 2020 - Economy & Business

Central banks worry their $25 trillion coronavirus stimulus isn't enough

Illustration of a hand holding a money gun that is shooting out cash.

Illustration: Aïda Amer/Axios

Having unloaded a historic arsenal of stimulus measures over the past three months, the world's central banks are doubling and tripling down on bond buying and policy easing even as the stock market booms and unemployment improves.

Why it matters: Many have credited the unprecedented surge of liquidity for the exceptionally fast rebound in capital markets — but with millions of workers and small business owners unable to take direct advantage of such programs, more action could further exacerbate the chasm between financial assets and the real economy.

What’s happening: The Fed is meeting today. It has yet to fire up many of its newly created lending and bond-buying programs, which are budgeted for hundreds of billions of dollars each and to which it has widely expanded access.

  • Analysts at Goldman Sachs and other major investment banks also expect it to announce a yield curve control program in the coming months that would see the Fed buying as many U.S. government bonds as necessary to keep Treasury yields at its desired level.

The state of play: "[Fed chair] Jay Powell has said he will expand the balance sheet to infinity if need be,” DoubleLine CEO Jeffrey Gundlach said during a webcast on Tuesday, predicting the Fed would institute the policy if yields continue to rise.

Elsewhere, the People's Bank of China continues its reverse repo program to provide capital to banks and announced in late May it will introduce 11 financial reforms, including more incentives for commercial banks to provide financing to smaller businesses.

  • The European Central Bank has increased its bond buying program to about 1.1 trillion euros and last week expanded its Pandemic Emergency Purchase Program (PEPP) to 1.35 trillion euros, extending it through at least June 2021.
  • The Bank of Japan has increased its purchases of ETFs and other risky assets, including corporate bonds, and is creating a new program to extend zero-rate loans to financial institutions.
  • Central banks in Indonesia, Poland, Romania and South Africa are among those in emerging markets that have started to buy government debt and initiate quantitative easing programs.

The big picture: In total, the world's four largest central banks — the Fed, ECB, BOJ and PBOC — hold $23.3 trillion on their balance sheets, according to data from Haver Analytics and Yardeni Research.

  • When including major central banks from England, Australia and Canada, that number rises to around $25 trillion, data from Bank of America show.

Of note: Fiscal policy also is expected to ramp up this year, even after measures in the past three months that Fitch Ratings estimates totaled 7% of global GDP, or around twice the total expended during the global financial crisis.

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