Industry commentators have described the US Federal Reserve's decision to buy up boundless government bonds and mortgage-backed securities (MBS) as "unprecedented" and "encouraging", but doubts remain as to how effective the latest measures will be.
On Monday (23 March), the Fed announced it would purchase unlimited US Treasuries and mortgage-backed securities as well as buying corporate debt for the first time in a bid to support businesses and financial markets during the coronavirus pandemic; further intervention than was taken by the Fed during the 2008 financial crisis.
Kevin Doran, chief investment officer at AJ Bell, dubbed the move "trench warfare in a world where the enemy has gone airborne", adding that the focus should be on fiscal policy.
"After the ECB and Bank of England rolled out their quantitative easing cannons last week, the Federal Reserve have opted to go nuclear with the promise to unleash uncapped QE," Doran said.
"Providing liquidity to markets is helpful, but shoring up asset prices is not what is called for this time around. What people are looking for is certainty over either their income or expenses. Rishi Sunak's furlough funding scheme is a step in the right direction, but until these kind of policies themselves go viral, the panic will continue."
While a $2trn package of fiscal stimulus is on the table, disputes between the Democrats and Republicans over the terms have delayed the deal.
Lifeline for the economy
Anna Stupnytska, global head of macro, Fidelity International, described the announcement as "another lifeline [for] markets and the economy" - with the caveat that fiscal stimulus has to match up to the measures.
"As its earlier interventions failed to abate severe stresses that have emerged in both US treasury and mortgage-backed security markets, the Fed has now pulled out the ultimate card - QE infinity - committing to unlimited purchases of government bonds and MBS," Stupnytska said.
"In addition, a number of new lending facilities have been unveiled, aimed at supporting the US corporate sector and households. This includes an unprecedented step to buy corporate debt - something other major central banks have done since the last crisis, but the Fed had so far managed to avoid. It is encouraging to see the Fed moving at a fast pace, providing essential support to the areas of markets and the economy under stress.
"However, all these efforts have to be matched by much bigger and timely packages on the fiscal side, which in turn have to be effective in helping the economy in this downturn but also - importantly - in the recovery… For the US economy to be able to come out of the current crisis and the ongoing recession relatively unscathed, more radical policy interventions will be needed in the next few weeks."
Holding the fort
Seema Shah, chief strategist at Principal Global Investors, pointed out that the Fed was effectively holding the fort in the absence of fiscal intervention, but added it was not enough.
"The Fed's programmes to directly provide aid to employers and households, as well as plans targeted at supporting small- and medium-sized businesses, will help fill in the sinkhole left by Congress' failure to pass a much-needed fiscal stimulus bill," Shah said.
"This seems to follow the recent pattern of many banks proactively acting to mute the negative impact of the shock, while fiscal authorities drag their feet.
"Hopefully, the positive market response can be sustained in the same way that the ECB's PEPP program has managed to support markets for a series of days. This is another essential step forward in providing a floor for risk markets but, unfortunately, it is not sufficient.
"Given some businesses' understandable reluctance to take on more debt during this tough economic time, the US economy still requires the US government to provide economic support in a way that doesn't involve additional borrowing."
David Page, head of macro research at AXA Investment Managers, commented that "the scale of intervention by the Fed today is unprecedented…[and] marks a fundamental step up in Federal support to the US economy".
But he added the measures announced were "incomplete" as the Main Street Business Lending Program will probably require "additional measures to be announced in the broader stimulus package that the government is currently trying to pass".
"We await the announcement of the Main Street Business Lending Program for details but expect this to be a similar package to allow vast swathes of the remainder of the US to access borrowing to get over the coming months," he said.
"In these measures, the Fed looks to be attempting the broadest reach across the US economy. However, inevitably the Fed is limited by providing support largely through access to borrowing.
"Many will still fall outside of this net and it is those that will await support still held up in Congress as the government attempts to finalise a stimulus package said now to be worth $2trn, or 9% of GDP."