Mar 13, 2020 - Economy & Business

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

Data: Investing.com; 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.

Go deeper: Fed cuts interest rate in response to coronavirus

Go deeper

Fed cuts interest rates to near zero in emergency coronavirus intervention

Photo: Mark Makela/Getty Images

The Federal Reserve on Sunday cut its benchmark interest rate to almost zero and launched a $700 billion quantitative easing program in response to the expected economic downturn and stock market slump caused by the coronavirus.

Why it matters: This is the most drastic measure the Fed could take to try to shield the economy amid a global pandemic. The central bank hasn’t made moves this dramatic since the financial crisis.

Go deeperArrowUpdated Mar 15, 2020 - Economy & Business

After its emergency rate cut, investors wonder what the Fed knows

Jerome Powell. Photo: Mark Makela/Getty Images

Investors and President Trump want the same thing after Tuesday's surprise 50 basis point cut by the Fed: more cuts.

The state of play: The announcement, two weeks to the day before the beginning of the central bank's scheduled March 17–18 policy meeting, has investors scratching their heads. "The Fed pulled the fire alarm without telling anybody why," Bernard Baumohl, chief global economist at the Economic Outlook Group, tells Axios.

One way to fight a coronavirus recession: $1,000 for every American

Jerome Powell and President Trump in 2017. Photo: Saul Loeb/AFP via Getty Images

Now that the Federal Reserve has fired its monetary policy bazooka — announcing Sunday the second emergency interest rate cut in as many weeks, this one taking rates effectively to zero — expect the drumbeat for fiscal stimulus to pick up, as more economists pound the table for government action.

What's happening: On Monday, Sen. Mitt Romney (R-Utah) joined a growing chorus of liberal and conservative economists are lining up behind a proposal published in the Wall Street Journal by Harvard professor Jason Furman, who chaired the Council of Economic Advisers (CEA) under President Obama, that calls for direct government payments of $1,000 to every American adult.

Go deeperArrowUpdated Mar 16, 2020 - Economy & Business