MiB: Understanding the Fed’s Impact on Markets

The Coronavirus pandemic has led to an unprecedented economic collapse, both here and around the globe. The Federal Reserve responded by slashing rates to zero and purchasing $2 trillion in new assets.  What will the impact of these Fed actions be?

That is a challenging question: Some expect a rapid recovery and spike in inflation; others see a long, slow recovery, more in the shape of a Nike swoosh logo than a “V”.

One of the first analysts who presciently explained the impact of the Federal Reserve’s quantitative easing and zero interest-rate policies in 2009 was Jim Bianco, President and Macro Strategist at Bianco Research.

I reached out to Jim, who understood the Fed’s role better than most in the last crisis, as to the possible outcomes this crisis.

Bianco, a former fixed income analyst who covers equities, notes the present economic debate is over whether we are having a supply or demand shock. Has the economy crashed because of the mandated closures (“Supply”)? Or have consumers fearful to leave their homes been the cause (“Demand”)?  The Chicago-based analysts sees consumers’ reluctance as a key factor in determining how long the Coronavirus hangover will last.

Bianco also explains why it is so difficult to determine what fair value is for markets. The impact of the Fed has created a permanent put that protects stocks from too big of a drop. The Fed was very aggressive into the teeth of the pandemic collapse, and that has helped the current stock market recovery to rally.

His favorite books are here; A transcript of our conversation is available here .

You can stream and download our full conversation, including the podcast extras, on Apple iTunesSpotifyOvercastGoogleBloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Henry Cornell, founder of Cornell Capital. Previously, he was the Vice Chairman and the original architect of the Merchant Banking Division of Goldman Sachs.



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