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More confirmation that the Fed is never out of ammo

Summary:
Market monetarists knew this all along: Should conditions on Wall Street deteriorate significantly, the central bank could go where it’s never gone before: to passively intervene in the stock market for the first time ever, according to market analysts and economists. . . .  The Fed would need congressional permission to extend its operations, but it already has received wide latitude from the Treasury Department through emergency provisions in the Federal Reserve Act. “If there were any major dislocations, it is clear that they will go into whatever nook and cranny in the market that starts to choke,” said Quincy Krosby, chief market strategist at Prudential Financial. . . . Indeed, the Fed already has shown a willingness to go beyond its financial crisis response, and it may

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Market monetarists knew this all along:

Should conditions on Wall Street deteriorate significantly, the central bank could go where it’s never gone before: to passively intervene in the stock market for the first time ever, according to market analysts and economists.

..  The Fed would need congressional permission to extend its operations, but it already has received wide latitude from the Treasury Department through emergency provisions in the Federal Reserve Act.

“If there were any major dislocations, it is clear that they will go into whatever nook and cranny in the market that starts to choke,” said Quincy Krosby, chief market strategist at Prudential Financial..Indeed, the Fed already has shown a willingness to go beyond its financial crisis response, and it may have to do more if the crisis worsens.

As the economic fallout from the pandemic spread earlier this month, Boston Fed President Eric Rosengren already was saying the Fed may need to broaden the types of assets it can buy to support the economy.

It’s fine if people want to keep talking about fiscal stimulus.  But don’t pretend it’s justified by the Fed running out of ammo.

PS. As I’ve said repeatedly, I’m in favor of Congress giving the Fed permission to buy corporate stocks and bonds, and I oppose the actual purchase of those assets.  Instead, I’d pursue level targeting.

HT:  David Beckworth


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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