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The Case For The U.S.: The Fed Will Do Whatever It Takes

May 03, 2020 9:11 PM ETVOO, IEI, TLT, SPY5 Comments


  • The Fed has shown that in times of crisis it will be the stopgap any permanent damage to the US economy.
  • The Fed has led the charge into the new monetary policy era, where it will finance a variety of tools.
  • After the pandemic, the US will retain its position as an economic safe haven given these actions and will continue to be a place for investors to feel safe.

The US is the economic behemoth of the world, and this stems from its unique place at the centre of the world’s financial, monetary and cultural crossroads. It has the strongest conventional military, it has the world’s most used currency, and everyone holds its issued government debt. One would be hard-pressed to find any place in the world under any government where the USD is not accepted. This is the position that MMTers (Modern Monetary Theory) dream about. A government that can issue debt without consequences. It seems that someone in the Fed was listening. The US is not the place of completely free markets anymore, nor does it even approach its position of regulating to ensure free market competition the same way (see Thomas Philippon’s book The Great Reversal for a better discussion on these changes). It would have been impossible to think that the Federal Reserve would step in and ensure the financing of private companies, states, municipalities or even ensure unlimited federal spending just months ago. Yet, the current crisis has turned all these assumptions on their heads.

Since the beginning of the COVID-19 crisis in the US, the Fed has stepped to the plate and continuously batted for a homerun. They have cut the effective federal fund rate down from its 2.4 plateau before the crisis to under 1% again. They reduced reserve requirements for banks to help combat any liquidity crunch in the financial system. It also announced that they would be buying up unsecured short-term debt to allow for sellers of this type of debt, typically businesses rely on this for operational purposes, to find a buyer. This was a historic move that showed the beginnings of how far the Fed is willing to grow to prop up the US economy. There has also been the entrance of the Fed into the municipal

This article was written by

I am an occasional investor looking for macroeconomic trends that lead to actionable ETF trades. I am a long-only investor seeking value and growth in all assets, such as bonds, equities, currencies and commodities. I also write on Medium on topics that provide a larger framework to thinking about the economy through historical case studies and other aspects of it that fits in with the actionable trades I write about on SeekingAlpha. On Twitter, I share charts, papers, and resources on everything touching politics, markets, economics and society.

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