Full blown panic mode at the fed5/8/2023 ![]() ![]() That means it’s time for the Fed to wind down, or taper, its debt purchases. The good news is the economic recovery is chugging along as more people get vaccinated, return to work, and in many ways are resuming their pre-pandemic lives. Those debt purchases were emergency measures implemented to stave off calamity, and were always expected to be rolled back once it was clear the economy had enough momentum to recover from the short-lived but severe pandemic recession of 2020. That disconnect between Wall Street and Main Street persists in part because the Fed has kept interest rates near zero and assured investors it would continue its easy-money policy for as long as needed to get the economy back on track. By April of that year, the stock market began to rebound, even as the broader economy faltered and the public health crisis worsened. With that supply of easy money, investors came back from the brink in the spring of 2020. ![]() By buying up debt, the Fed was essentially turning on a money spigot.Īnd it has been keeping that up ever since, to the tune of about $120 billion a month in Treasury bonds and mortgage-backed securities. Without getting too in the weeds about the Fed’s balance sheet, the thing to understand here is that a big part of the central bank’s job is to ensure stability, and it does that by controlling the amount of money sloshing around. ![]() It did that by buying government-backed debt - lots of it. If you were brave enough to peek at your retirement account during that time, it was a grim sight.Īs Congress bickered over what to do, the Federal Reserve essentially threw itself on top of the Covid bomb to prevent a total financial and economic collapse. In just under a month, the S&P 500 – the broadest measure of Wall Street – lost more than 30% of its value. Businesses shut down, at least 20 million people lost their jobs in a single month, and Wall Street was in full-on panic mode. To understand how we got here, let’s flash back to March of 2020, when Covid-19 landed like a bomb on US shores. While it might sound somewhat academic, the results of the Fed’s decision could have a huge impact on everyday people, especially those looking to buy a home or run a business. When the Fed eases off the stimulus pedal, borrowing could grow more expensive, making businesses pay more, which means less profit, which means Wall Street is…sad. The short answer: Money has essentially been free for the past year and a half, thanks to the Fed’s double-barrel shotgun approach to economic stimulus - interest rates near zero and a massive investment in bonds that keeps yields near rock-bottom. It’s official: The Federal Reserve is winding down its aggressive pandemic-era stimulus measures, a process Wall Street nerds call “tapering.” But what, exactly, does that mean? ![]()
0 Comments
Leave a Reply. |