By Anna Stupnytska, Global Head of Macro, Fidelity International
Anna Stupnytska, Global Head of Macro, Fidelity International, comments on the Fed’s commitment to unlimited purchases of government bonds and mortgage-backed securities:
“The Fed has thrown another lifeline to markets and the economy as the covid-related disruption continues to ripple through the system. As its earlier interventions failed to abate severe stresses that have emerged in both US Treasury and mortgage-backed security (MBS) markets, the Fed has now pulled out the ultimate card - QE infinity - committing to unlimited purchases of government bonds and MBS. In addition, a number of new lending facilities have been unveiled, aimed at supporting the US corporate sector and households. This includes an unprecedented step to buy corporate debt - something other major central banks have done since the last crisis, but the Fed had so far managed to avoid. It is encouraging to see the Fed moving at a fast pace, providing essential support to the areas of markets and the economy under stress.
“However, all these efforts have to be matched by much bigger and timely packages on the fiscal side, which in turn have to be effective in helping the economy in this downturn but also - importantly - in the recovery.
“Unfortunately, given the uncertainty about the virus trajectory, as well as the powerful spill over effects on the real economy, it seems unlikely at this point that the US economy will see a sharp V-shaped rebound in the second half of this year. For the US economy to be able to come out of the current crisis and the ongoing recession relatively unscathed, more radical policy interventions will be needed in the next few weeks.”
