“Watch the yield curves as a barometer for investor sentiment on any outlook for a COVID stimulus pact ..
The ECB and the FED would do well to disappoint markets in an effort reinject some pain for investors. Capitalism demands it. In addition, central bank inaction would force governments to rely more on fiscal stimulus to generate activity, something all the central banks are promoting…
Listen for this type of policy action from the FOMC at this week’s meeting. By ensuring the FED will be there to BUY the longer duration assets “it could potentially avoid some of the tantrum dynamics that have led to premature steepening at the end of the yield curve in several jurisdictions.” This would be the final arrow in the quiver of financial repression. Brainard has been silent about YCC lately but this meeting may bring her work back to the fore as the FED is stuck at the zero lower bound while encumbered with an intransigent Congress.
The impact from active YCC would be a negative for the DOLLAR, positive for equities and many commodities. The FED will not be alone in YCC for the Aussies, Canadians, Brits Japanese — and to some extent the ECB — are already there. But the U.S. role as the world’s reserve currency is a variable unknown to the other central banks. These are global financial policies spinning like a dreidel.”