Zero Interest Rates ‘Til 2022!
The Federal Reserve has committed to more of the same. It’s keeping interest rates at zero for another two years, the money printers going brrr, and now there’s set to be three more emergency lending programs launched in addition to the nine currently. These are the big guns!
Federal Reserve Chairman Jerome Powell is an economic bear taking matters into his own hands. The former lawyer has maxed out his economic policies while warning investors about coronavirus damages that won’t patch up fast, no matter what stock market surges may suggest.
His recessionary harpoon is zero interest rates, which mean a near-zero cost of borrowing for entrepreneurs and business owners. The cheap debt should stimulate risk-taking and lift sentiment, while quantitative easing (QE) focuses on supporting the stock market.
Quantitative easing means digital money printing, done when the Fed buys bonds and bids up bond prices to stifle their value for money. It forces investors to switch to stocks instead, but it’s not real value created. QE gives the stock market a facelift, but it risks some bond investors ‘reaching for yield’ in a ‘dash for trash’ into extremely risky debt.
It would’ve been shocking for Jerome Powell to announce a rate hike, but a two-year pledge to keep rates rock-bottom is also a surprise. If the stock market experiences a big pullback, perhaps there’s a second wave, rates will have nowhere to go but sub-zero.
Stocks are in a world of zero-gravity; we better get used to it!