Consequences to ponder if the US Fed indulges in 'QE Infinity'

LAST month, the US Federal Reserve unveiled its strategy for preventing a total collapse in the financial system - an interest rate cut to almost zero and a multi-trillion monetary bazooka that will see the US central bank buy almost every kind of financial product in the various markets that have been frozen due to the virus pandemic.

The instruments the Fed will use include the emergency lending facilities introduced during 2008's US sub-prime crisis - the Term Asset-Backed Securities Loan Facility, the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility, the Secondary Market Corporate Credit Facility and the Primary Market Corporate Credit Facility.

Some observers estimate that the Fed is set to inject up to US$6 trillion into markets by buying money market funds, corporate bonds, municipal bonds, bank lines of credit, student loans, mortgage-backed securities and, according to Fed chairman Jerome Powell, perhaps even stocks. He even raised the possibility of unlimited quantitative easing, which analysts have dubbed "QE Infinity". The sheer size of this bailout had one publication declaring "forget the bazooka, the Fed has gone nuclear".