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Coronavirus Economy

Federal Stimulus Approaching Moral Hazard

Incredibly, the stock market is reaching unprecedented highs thanks to a constant purchase of corporate debt by the US Federal Reserve. NASDAQ had a record day today as money trickles into riskier stocks.

The US Federal Reserve is freely purchasing positions in ETF’s (Electronically Traded Funds) which is helping support the value of stocks. Propping up these values is helping a small portion of US employees maintain the value of their 401k’s, but there may be a need to prepare for a second wave of unemployment in a different sectore of the economy.

For instance, a second wave of unemployment is expected in white collar sector jobs:

The pandemic isn’t finished with the U.S. labor market, threatening a second wave of job cuts—this time among white-collar workers.

Bloomberg News (06/03/2020)

While there may be a need to provide stimulus support for equities, there is also a likely larger need to prop up the unemployment funds of various states through a federal aid package aimed at different US states.

However, earnings and economic data is otherwise dismal so what gives? Some people assume that investors are simply overly optimistic. Stimulus from different government may also be stabilizing the bottom of consumer demand.

By Ricardo Lezama

Learn more about me in my website, but if you must know, I am a computational linguist through industry work and write about things that affect Chicano/Mexican community everywhere.

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