After announcing 700 billion in quantitative easing purchases, the Federal Reserve has recently reduced its purchases of government bonds twice in a row. However, this does not mean that the Federal Reserve intends to tighten monetary policy, but only improves the pertinence of loose money and provides more money supply to enterprises beyond the banking system. The picture shows the Fed’s purchase of Treasury bonds has dropped. 1. How does the Federal Reserve conduct monetary easing now?

After the U.S. stock market continued to fall, the Federal Reserve responded quickly by announcing an interest rate cut to zero and launching a $700 billion quantitative easing program. However, this did not seem to have any effect on the capital market. After the introduction of quantitative easing, , the U.S. stock market still experienced four circuit breakers, which forced the Federal Reserve to consider what went wrong with its monetary policy. The picture shows that the purchasing speed of the fourth round of quantitative easing far exceeds that of the first three rounds of quantitative easing.

In fact, it is the Fed itself that prevents the Fed from transmitting monetary easing to the market. After the financial crisis in 2008, the Federal Reserve realized that if financial institutions were allowed to participate too much in U.S. stock investments, fluctuations in the U.S. stock market would be transmitted to the financial market, ultimately leading to huge risks in the financial system. Against this background, the Federal Reserve issued a policy A series of measures have limited the banking system’s participation in U.S. stocks.

In the early stages of this crisis, this successfully prevented the continued decline of U.S. stocks and triggered the collapse of the financial system. However, it also became an obstacle for the Federal Reserve to be unable to directly provide assistance to U.S. stocks, because even the Federal Reserve was in the market. A large amount of treasury bonds were purchased, and these funds were only put into the hands of qualified financial institutions, but these financial institutions were unable to use these funds for investment in the US stock market. In other words, there is a problem with the transmission of funds.

The Federal Reserve also quickly realized this, so it had an unprecedented 15 trillion repurchase limit and so-called unlimited quantitative easing, and subsequently announced the acceptance of junk bonds to guarantee corporate debt. There will be no cross-defaults in the market. This is equivalent to the Fed bypassing the banking system and directly releasing funds into the market. The picture shows that after the measures were taken, interest rate spreads in the corporate bond market fell rapidly.

In other words, the Fed’s easing measures are now divided into two parts. The first part is aimed at the banking system, represented by quantitative easing; the second part is directly targeted at the market, with the core being commercial paper purchases. , which is what we call unconditional takeover of risky assets. 2. Reducing quantitative easing is not the same as reducing monetary easing.

After the market fell into crisis, the Federal Reserve’s quick response won praise from the financial community. It even launched some unprecedented liquidity release tools, which can provide more short-term liquidity for businesses. . The picture shows the liquidity tools adopted by the Federal Reserve so far.

The large number of liquidity release tools also means that even if the Fed reduces its quantitative easing purchases, it will not be too disrupted by the liquidity in the market, because the liquidity released through quantitative easing itself It is difficult for liquidity to be released into the market through the financial system.

In the U.S. economic downturn that began in 2019, the most fatal risk exists on the corporate side, that is, the problem of the corporate bond market. After four circuit breakers burst the bubble in the U.S. stock market in advance, corporate bonds have become almost the only major risk in the United States. But this is also good news, because crises in the corporate sector generally result in shallow recessions, which also means that the Fed can release liquidity in a more targeted manner.

So for the Federal Reserve, the most important thing at the moment is to use commercial paper purchases and unlimited quantitative easing to minimize the risk of cross-defaults in the U.S. debt market. As for the reduction of quantitative easing, it is not No big impact.

Another thing to know is that the United States is rapidly carrying out fiscal monetization and debt monetization, both of which will continue to increase the Federal Reserve's balance sheet. The Treasury Department's appropriation provides credit guarantees to the Federal Reserve, which in turn issues credit stimulus that is 10 times the Treasury's appropriation. This means that the United States will release more than 2 trillion stimulus plans through the Federal Reserve in the future. The picture shows the rapid expansion of the Federal Reserve's balance sheet.

Under such a huge stimulus, the US$700 billion quantitative easing seems to pale in comparison. 3. Risks are still accumulating.

Logically speaking, the Federal Reserve has taken over a large number of government bonds and corporate bonds in the market, so has the debt risk of the United States been alleviated? Not really.

The Fed's policy can only be said to have temporarily reduced risks, rather than eliminated them. Moreover, under such a loose policy, risks are still accumulating further.

Let’s talk about the U.S. Treasury bond market first. The Federal Reserve is accepting a large amount of U.S. Treasury bonds as collateral and at the same time distributing liquidity to domestic financial institutions and foreign sovereign funds, but this has also created a vicious cycle to some extent. Financial institutions pledge U.S. Treasury bonds in exchange for cash. If the amount is large, the price of the Treasury bonds will fall, and the assets originally pledged by the financial institutions and the margin will depreciate, requiring more margin supplements from financial institutions, which in turn will cause more A lot of treasury bonds are pledged. If conditions worsen in the short term, U.S. Treasuries will remain conservative.

Let’s talk about U.S. corporate bond risks.

In the short term, the risk in the U.S. corporate bond market is very small. This is because the Fed's current monetary easing has made the market's financing costs cheaper than in 2013 to 2014, when the U.S. corporate bond risk was just brewing. Therefore, companies can borrow new debt. Pay off old debt, but this has caused a rapid increase in the amount of corporate debt in the United States, as shown in the figure.

Among these bonds, the proportion of high-risk junk bonds continues to rise. It can be said that after this round of crisis is over, the risks in the U.S. bond market will become the most important risk inducement for the next round of economic crisis.

To sum up, the Federal Reserve is currently distributing liquidity to financial institutions and enterprises at the same time. Cutting quantitative easing does not mean that the overall monetary policy has begun to tighten, but it has strengthened more targeted liquidity for enterprises. release. But this move is also a waste of time, as it may cause more risks to accumulate in the bond market.