Yellen says Fed doesn’t need to buy stocks now, but Congress should reconsider authorization


Former Federal Reserve President Janet Yellen believes the central bank is unable to buy stocks, but believes lawmakers should give it more leeway in the future.

“It would be a substantial change to give the Federal Reserve the opportunity to buy stocks,” Yellen told CNBC’s Sara Eisen on “Squawk on the Street”. “I really don’t think it’s necessary at this point. I think intervention to support the credit markets is more important, but in the longer term, it would not be a bad thing for Congress to reconsider the Fed’s powers in terms of assets it can own. “

Normally, the Fed is only allowed to hold public and agency debt with government support, said Yellen. The central bank also received special powers during the coronavirus epidemic to purchase other assets such as corporate debt through exchange-traded funds. The Fed also cut rates to zero and launched an unlimited quantitative easing program to help stabilize the markets. However, the Fed would need additional authorization to buy exchange-traded funds.

Other central banks – including the Bank of Japan – have bought some of their country’s stocks to ease the recent carnage caused by the coronavirus epidemic.

“The Fed … is much smaller than most other central banks,” said Yellen. “Even when it comes to corporate debt ownership, the Fed is not allowed to hold corporate debt directly, and most other central banks are. “

Yellen’s remarks came as the number of coronavirus cases around the world neared 1.3 million, according to Johns Hopkins University. In the United States alone, more than 330,000 cases have been confirmed.

Admittedly, New York – the state with the most confirmed cases – reported fewer deaths on Sunday than Saturday and a drop in hospitalizations. Some European countries also recorded a slower death rate over the weekend.

This has helped to raise stock prices around the world. However, even after a rally of more than 4% for the S&P 500 on Monday, the overall market average is still down more than 20% from the record set in late February. The stock market outside the United States is just as bleak. The iShares MSCI ACWI ex-U.S. (ACWX) ETF, which tracks stocks outside the United States, has declined more than 20% since the start of the year.

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