on Monday. The flattened curve limits the aid a Treasury twist could deliver and drives the need for a fourth policy move to lift economic activity, according to the bank.
Should the Fed require additional stimulus after lowering rates, quantitative easing measures could return for the first time in more than five years. The policy involves the central bank purchasing assets to inject capital into money markets. The Fed will consider buying up Treasury bills and mortgage-backed securities after exhausting its other, more traditional actions, Bank of America said.
There's "plenty of firepower to purchase," the analysts wrote, mentioning $9 trillion in Treasury bills, $8.5 trillion in mortgage-backed securities, and another $1 trillion in debt held by agencies including Fannie Mae and Freddie Mac. The flat yield curve limits the power of Treasury purchases and will likely push the Fed to buy up more agency mortgage-backed securities, they added.
Bank of America included yield curve control, negative interest rates, and QE operations focused on credit and equities as possible stimulus measures but deemed them highly unlikely. The central bank "will be dusting off the '08 playbook" and focusing on monetary stimulus, the analysts wrote. The Fed's actions will be joined by government-issued fiscal stimulus in the near future, the bank added.
They say they have 4 tools... But in reality they only have 1 tool. Print more money.
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