Federal Reserve’s US$3 trillion virus rescue inflates market bubbles
NEW YORK: The Federal Reserve's US$3 trillion bid to stave off an economic crisis in the wake of the coronavirus outbreak is fuelling excesses across US capital markets.
The US central bank has pledged unlimited financial asset purchases to sustain market liquidity, increasing its balance sheet from US$4.2 trillion in February to US$7 trillion today.
While the vast majority of these purchases have been limited to US Treasuries and mortgage-backed securities, the Fed's pledge to bolster the corporate bond market has been enough to spur a frenzy among investors for bonds and stocks.
"COVID-19 is now inversely related to the markets. The worse that COVID-19 gets, the better the markets do because the Fed will bring in stimulus. That is what has been driving markets," said Andrew Brenne...