On Monday, March 16, Gregory Faranello, Head of U.S. Rates at AmeriVet, held a conference call to discuss the most recent actions from the Federal Reserve.

View the full transcript and audio from the call and a brief recap below of Gregory’ discussion.

Unprecedented moves

This is unlike anything we have seen before and the goal is not to let a health crisis become a financial crisis.

With elevated funding rates, CP in particular, it became clear certain segments of the U.S. Treasury and mortgage market were not functioning properly — so the Fed stepped in with emergency measures this past Sunday night. This included the lowering of the Fed funds rate to the zero lower bound and a $700B quantitative easing program. As the anticipated speed of the virus changed, so too, have the Fed’s actions.

Slashing interest rates and expanding balance sheet

Although low interest rates will not solve our current challenges nor alleviate health concerns, it’s clear we needed the Fed to step in with a targeted effort.

The Fed is expanding their balance sheet by at least $700B, which will be split between treasuries ($500B) and mortgage ($200B). If you listen closely you can hear that Chairman Powell is most focused on the proper functioning of the Treasury market short term. “The goal here is to get funding levels down and ensure the dollars are flowing to the right liquidity buckets.”

What we need most is leadership

We know that these moves from the Fed are clear indications that they are trying to prevent current financial issues from getting worse. Sunday evening’s announcement was bold and Chairman Powell’s tone was aggressive regarding short term balance sheet actions. Liquidity is critical here and when markets are not functioning properly, it’s the Fed’s job to provide appropriate liquidity and stabilize.

Leadership is vital right now. Sometimes it’s necessary for the Fed to be our last resort market maker and this clearly was one of those times.

Follow Gregory Faranello on LinkedIn or reach out at Gregory.Faranello@amerivetsecurities.com for more market insights.