The Federal Reserve has made clear its intent: It’s willing to do essentially anything to support markets and the economy. And it really, really means it.
Interest rates have been taken to zero, and unlimited quantitative easing, or QE, is in effect. The central bank then raised the ante with daily trillion-dollar engagements in repo markets, and its QE program is growing its balance sheet by about $625 billion per week. For context: one bout of QE post-2008 financial crisis was $600 billion over the course of eight months.
This is profound involvement. However, it’s all activity the Fed is allowed to partake in - it can transact in any asset that carries a government guarantee.
The Fed also has now begun purchasing “risk assets” or securities that carry no such federal guarantees. The Secondary Market Corporate Credit Facility has it buying corporate bond ETFs in the open market; its Commercial Paper Funding Facility and Primary Market Corporate Credit Facility has it transacting in commercial paper and corporate debt directly from businesses. The Fed also is about to begin acting like an actual bank for small business via the Main Street Lending Program.
“By any means necessary” probably deserves to be added right after “In God We Trust” on dollars at this point.
The Fed isn't legally able to do this by itself, and it’s making it happen through some creative financial engineering. The Treasury is officially the one making the purchases with the help of BlackRock (BLK) - Get Report via special purpose vehicles (SPV) that are financed by the Fed. So the Fed is essentially acting as banker to the Treasury, which is employing BlackRock as its broker to carry out the effective nationalization of parts of markets.