How is the FED handling the ongoing crisis
Diupdate
M2, a measurement of the money supply, is a critical factor in the forecasting of issues like inflation. Inflation and interest rates have major ramifications for the general economy, as these heavily influence employment, consumer spending, business investment, currency strength, and trade balances. In the US, the Federal Reserve publishes money supply data every Thursday at 4:30 p.m., but this only covers M1 and M2. Data on large time deposits, institutional money market funds, and other large liquid assets are published on a quarterly basis and are included in the M3 money supply measurement.
This century alone, M2 has been growing. In each of these years; 2001, 2008, 2011 and 2020, the Fed pushed it a notch higher. These years coincide with periods of economic weakness.
So, how has the Fed reacted this year?
First, it's important to understand that the Fed's dual mandate is to manage unemployment and inflation.
Therefore, as the situation evolves, this would be a good time to study the market in relation to Fed actions. I believe more volatility is going to be experienced during the northern hemisphere winter season. The Fed, ECB, BOE, BOJ and other central banks are reacting differently and this will impact your trading. Be on the look out for news regarding central banks around the world.
This century alone, M2 has been growing. In each of these years; 2001, 2008, 2011 and 2020, the Fed pushed it a notch higher. These years coincide with periods of economic weakness.
So, how has the Fed reacted this year?
First, it's important to understand that the Fed's dual mandate is to manage unemployment and inflation.
- Interest rates
The Fed has lowered interest rates as it did back in 2008. This has lowered the cost of borrowing. - Paycheck Protection Programme
In accordance with the CARES act, the Fed started a program that enabled businesses to keep paying their employees. This has helped reduce unemployment from 13.3% in May to 7.9%. - Main Street Lending
Five facilities have been setup for lending to businesses and NGOs. - Treasury Securities
The Fed ramped up its purchases of Treasury securities. It bought around $1.7 trillion worth between mid-March and the end of June. The Fed also increased its purchases of mortgage-backed securities. In general, the Fed’s purchases of securities keep markets working when assets are otherwise difficult to sell. The purchases also inject cash into the economy, and convey to the public that the Fed stands ready to backstop important parts of the financial system.
Therefore, as the situation evolves, this would be a good time to study the market in relation to Fed actions. I believe more volatility is going to be experienced during the northern hemisphere winter season. The Fed, ECB, BOE, BOJ and other central banks are reacting differently and this will impact your trading. Be on the look out for news regarding central banks around the world.
Catatan
Citigroup strategists are worried about multiple threats to equities, but still recommend investors buy the dip. They expect central banks to step in if risks mount t.co/0uycmH9yYv
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