The U.S. Federal Reserve (FED) is getting more aggressive in its interventionist measures. CNBC, on June 15, 2020, reported that the central bank will foray into corporate credit as the program buys $750 billion worth of debt from stressed BBB- or /Baa3-rated companies at any other time. This is almost 3.5X of Bitcoin’s market cap, adding functions to the Secondary Market Corporate Credit Facility (SMCCF).
This is on top of their buying of exchange-traded funds (ETFs) following a watershed announcement on March 23 that sparked a shift of the central bank’s moves amid the raging coronavirus pandemic that has thrown US companies into financial doldrums.
Creating A Corporate Bond Portfolio
The objective of the program, according to a FED statement, is to create a corporate bond portfolio of U.S. Corporate bonds:
“This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds.”
As the zoonotic virus spread across the globe, paralyzing operations and forcing governments to act fast, firms with customer front-facing models bore the brunt.
At the same time, workers especially in the service sector also had to contend with pay cuts or even job losses.
This heaped more pressure on governments who had to step in to aid furloughed and affected workers through helicopter money offered through stimulus checks and unemployment claims.
Economic Recovery May Be extended, Boost for Bitcoin?
Analysts are of the view that the move by the FED means economic recovery could take longer and the financial market may need more support. Steven Friedman, the senior macro-economist at MacKay Shields, said:
“The decision to buy a broad portfolio of corporate bonds represents a shift to a more active strategy for the secondary market corporate credit facility, rather than the passive approach originally envisioned. It may also reflect the Committee’s view that the economic recovery from the ongoing COVID-19 crisis will be an extended and challenging one, with credit markets requiring extensive support.”
The announcement is a boost for Bitcoin which has so far steadied after tumbling to below $9,000 on June 14, 2020.