Loading ...Credit Suisse’s Zoltan Pozsar who now expects the Fed effectively launch every liquidity bailout operation possible
“We are at the stage where central banks need to provide exceptional liquidity into the market to make sure that basic markets can function.”
But the real question is whether central banks can even do that: after a catastrophic ECB press conference which led to the biggest European market crash in history, and two days of unprecedented Fed interventions, stocks barely noticed, and it wasn’t until Trump made some vague promises on Friday afternoon that risk finally found a bid. This backdrop means that Fed policy makers when they meet next week have to not only cut rates but take additional action to shore up liquidity in the financial system, said Alex Li, head of U.S. rates strategy at Credit Agricole. That could include a special liquidity program, such as efforts undertaken during the financial crisis, he said, echoing Credit Suisse’s Zoltan Pozsar who now expects the Fed effectively launch every liquidity bailout operation possible, save for purchasing stocks outrght.
“The Fed just cutting rates again at this stage is really not the right medicine,” Li said.”‘The Treasury market is broken — with it being very illiquid. There’s very wide spreads between on- and off-the-run spreads,” and other signs of dislocation.
Let’s just hope Jerome Powell, who first diagnosed the real problem with the US capital markets back in 2012, knows how to fix them.