In early spring of March, US stocks and global stock markets experienced an epic plunge due to panic sentiment caused by the spread of the New Coronavirus epidemic. As the world ’s largest central bank, the Fed also rarely used various tools to rescue the market.

However, this wave of Fed operations has also triggered controversy in the market. Is the Fed with a one-time photo bullet to be a poor donkey?

The answer of former Fed Chairman Janet Yellen may be the last one.

On March 26th, Beijing time, Yellen faced global investors during a Citibank conference call and directly commented on the rationality of the Fed ’s wave of operations.

Yellen affirmed the Fed ’s rapid and positive response to the deteriorating economic situation, including the Trump administration ’s $ 2 trillion economy Stimulation plan. Yellen called the US $ 2 trillion economic stimulus plan “extraordinary significance.” These measures can stabilize the market to a certain extent during this turbulent period and provide support for economic activities.

Last August, Yellen worked with three other former Fed Chairman Paul Volcker, Alan Greenspan, and Ben Bernanke on “Wall Street” The Daily co-signed the article “The United States Needs an Independent Federal Reserve”, calling on the Federal Reserve to maintain its independence.

Yellen said at the meeting that the United States and the global economy have been seriously threatened by the new crown epidemic. In the current crisis, issues such as rising unemployment and inflation below the 2% target are all issues that the Fed is most concerned about because the Fed ’s legal goal is to “achieve maximum employment and price stability.” The surging news collates several important conclusions of Yellen as follows:


Conclusion 1: There is not much room for traditional monetary policy

Financial markets have suffered a great deal under the current circumstances, except for the large stock market shocks As a result, liquidity issues in major markets such as national debt and mortgage-backed bond (MBS) markets have prevented the credit market from functioning. Due to the surge in personal borrowing, the short-term money market has frozen and it is difficult to support short-term loans.

Regarding whether the downgrade of global companies will affect the companies ’use of financing policy tools, Yellen pointed out that the current Fed policy allowsAll companies that have been rated investment grade before the outbreak provide financing assistance, and future downgrades will not affect the company’s continued use of policy tools.

Therefore, the loose monetary policy adopted by the Fed is very timely, and a series of liquidity tools are used to provide more financial support to enterprises and households. At the same time, Yellen also pointed out that the traditional US monetary policy has little room to play, and the Fed will maintain ultra-low interest rates for a long time.

Yellen also predicted and suggested that the Fed can use the role of “forward-looking guidance” in the future to actively guide the market.


The second argument: there will be no stagflation

The Federal Reserve under Powell ’s leadership has lowered the federal funds rate to zero Asset purchase plan. Yellen believes that if future inflation falls further, or the economy continues to delay recovery, the Fed can give more forward-looking guidance.

Will such a large-scale stimulus cause inflation to rise or even stagnate?

Yellen believes that the Fed can tolerate an inflation target of 2% to 3%. At the same time, Yellen believes that when short-term interest rates remain zero for a long time, there will be no stagflation in the 1970s. But if there are signs of a sharp increase in inflation, you need to re-examine.


Argument 3: Unemployment rate or the Great Depression

For the newly announced number of unemployment benefits applicants set a historical record, Yellen said that the number reflects the current The situation in the labor market also indicates that the unemployment rate may continue to increase substantially in the short term. If economic stagnation continues, the number of unemployment benefits applicants will continue to rise.

Due to the stagnation of economic activity, the most obvious problem is the huge decline in sales, including industries such as catering and tourism, and revenue is expected to decline by 70%. Many economists predict that the US GDP will fall by 20% in the second quarter, perhaps worse, and the unemployment rate may soar to the level of the Great Depression. But Yellen said that these problems may be recovered in the short term, and the final smooth recovery requires Congress to adopt more fiscal policies to support the economy.


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