The Federal Reserve’s decision to buy corporate bond ETFs, including junk bonds from BlackRock, represents a significant departure from its traditional policy methods. This action is part of a broader strategy aimed at supporting the economy during the COVID-19 pandemic by injecting liquidity into cash-strapped businesses.
The Fed began purchasing these corporate bond ETFs on June 4, 2020, as part of their Secondary Market Corporate Credit Facility, aimed at providing liquidity to businesses affected by the pandemic. Approximately $1.3 billion was allocated for these purchases, which included over $190 million in junk bond ETFs from BlackRock and State Street. This move was intended to provide additional liquidity to companies grappling with financial distress due to the pandemic.
Critics of this strategy argue it constitutes an overreach of the Fed’s authority, traditionally focused on maximizing employment and maintaining low inflation. There are concerns that these actions could effectively transform corporations into partially state-owned enterprises.
This decision to purchase bond ETFs is viewed as a radical deviation from the Fed’s customary methods for adding liquidity to the economy, which typically rely on Treasury bills and notes.
The federal reserve buying BlackRock junk bonds was the most socialist move I've ever seen.
Nothing about the US is free market
— Darth Powell (@VladTheInflator) November 2, 2024
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