Global Monetary Policy Map

Millions of American jobs have been lost in the last two months following the onset of COVID-19 and the intentional economic shutdown to stem the pandemic. Of course, the tough times are global too. For the US, one group has been hard at work – the Fed. 

There has been a tremendous monetary policy response to COVID-19. Each time a pundit has uttered those infamous words, “the Fed is out of bullets”, we seem to get another huge piece of stimulus.

It has been a fascinating time since the Great Financial Crisis. The US Federal Reserve took on a massive quantitative easing program but then enacted a brief tightening cycle.  It was late 2015 when the Fed began hiking rates and not until December 2018 when the Fed Funds Target Policy Rate topped out in the 2.25-2.50% range. 

Topdown Charts closely monitors the global monetary policy situation. We focus on macro analysis to arrive at investment conclusions. Following the 2008-2009 recession, a general tightening cycle took place followed by some banks easing with others tightening, seen in the charts below. 2018 was interesting in that it was just about the only stretch that featured pervasive interest rate hikes.

(Click on image to enlarge)

The above charts come from the April edition of the Market Cycle Guidebook.

Jay Powell and his team at the Fed has been busy. Consider all of the measures: taking rates to zero, issuing very lenient forward guidance, open-ended securities purchases (QE), lending to companies, backing money market funds, and expanding the repo market to improve liquidity. They even stepped out and began direct lending to banks, large corporations, and even smaller businesses. I can keep going – they now support muni bonds and high-yield debt across the US credit market. The list goes on. Out of bullets? Chairman Powell may consider that a dare, so be careful.

Sure it’s interesting to study monetary policy during strenuous economic times, but what does it all mean from an investing point of view? Considering all of the massive programs announced since early March that have sent the US Fed’s balance sheet to new records, the US Dollar is rather flat.

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