What central bankers don’t understand about markets

The market interpreted it as the Fed would do “whatever it takes” to support the United States facing the worst pandemic and economic recession since the 1930s.

WHEN chairman Jerome Powell announced after last Wednesday’s Federal Open Market Committee meeting that the Fed is “committed to using its full range of tools to support the US economy in this challenging time”, the market interpreted it as the Fed would do “whatever it takes” to support the United States facing the worst pandemic and economic recession since the 1930s.

Since the beginning of this year, the Fed has expanded its balance sheet by an unprecedented US$3 trillion to just under US$7 trillion by buying US treasuries, mortgage securities and commercial debt.

The top four central banks (Fed, European Central Bank (ECB), Bank of Japan (BoJ) and People’s Bank of China) have added US$6 trillion to their balance sheet size since the beginning of the year to US$25.2 trillion or 28.7% of 2019 world GDP. That is serious money (your money)!