The Fed will soon be buying stocks.
Earlier this week, the Fed announced that it will begin buying corporate bonds from individual companies. Before this announcement, the Fed was already involved in the:
- The Treasury markets (US sovereign debt)
- The municipal bond markets (debt issued by states and cities)
- The corporate bond markets by index (debt issued by corporations)
- The commercial paper markets (short-term corporate debt market)
- And the asset-backed security markets (everything from student loans to certificates of deposit and more).
With the introduction of individual corporate bonds, the Fed is now one step closer to buying stocks outright.
Indeed, the Fed has made ZERO references to stopping its monetary madness. Just yesterday Fed Chair Jerome Powell emphasized to Congress that the Fed is “years away from halting its assets monetization scheme.”
Again, the Fed is explicitly telling us that it plans on buying assets (Treasuries, municipal bonds, corporate bonds, etc.) for years to come.
The next step will be for the Fed to buy stocks.
It won’t be the first central bank to do so…
The central bank of Switzerland, called the Swiss National Bank has been buying stocks for years. Yes. It literally prints money and buys stocks in the U.S. stock markets.
Then there’s Japan’s central bank, called the Bank of Japan. It also prints money and buys stocks outright. As of March 2019, it owned 80% of Japan’s ETFs.
The BoJ is also a top-10 shareholder in over 50% of the companies that trade on the Japanese stock market.
If you think this can’t happen in the US, think again. The Fed told us in 2019 that it would be forced to engage in EXTREME monetary policies during the next downturn.
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