Fed Repurchase Plan $80 Billion Per Week Until 2021
Updated: Aug 17
The Federal Reserve's plan for monetary stimulus during the Pandemic is to continue their current plan of purchasing $80 billion per week in treasury bonds and mortgage-backed securities until the end of 2021. This deadline coincides with two recent deadline extensions: raising interest rates and the removal of the benchmark interest rate LIBOR. By the end of 2021, the pandemic is expected to be in the rear view mirror with nearly the entire world having been vaccinated at this point.
Essentially, we are printing $80 billion per week to repurchase these securities. Printing money to such a drastic extent will surely have negative effects. One of these effects is the artificial augmenting of asset prices. The increase in the money supply simply means that money becomes less valuable. Money and Assets have an inverse relationship, like a seesaw. When one goes up, the other goes down. Therefore, less valuable money = more valuable assets.
Therefore, if we can expect the Fed repurchase plan to extend through 2021, then we can expect an increase in the value of assets over this time. Stocks will go up, housing prices will go up, etc.
This is a bubble. The assets aren't becoming more expensive because they are more valuable, they are only becoming more expensive because it costs more money to purchase them. The assets that are increasing in value during this time are those that will increase in price the most.
Investing in 2021 will likely be fairly easy. Investors could consider investing in index funds and broad ETFs to cover the general scope of the market.