Thread by @IrvingSwisher

It is mistaken to think that the Fed just exhausted its ammunition just now.

Yakov Feygin (@BuddyYakov) and I are calling for the Fed to commit to buying short-term state govt debt so that states have the financial flexibility to respond to the crisis.
medium.com/@skanda_97974/…

The Fed ALREADY has the authority to enact this policy TODAY under Section 14(2)(b) of the Federal Reserve Act.

This would serve as targeted stimulus to precisely the actors that are on the front line of this crisis - state governments.

Unlike other intervening measures that rely on authority under Section 13(3) of the Federal Reserve Act, our policy does not require approval from the Secretary of the Treasury. The Fed can enact this policy unilaterally and instantaneously.

The municipal bond market is under significant strains right now. Yields on AAA-rated are trading at crisis-level premiums relative to U.S. Treasuries.

The Fed committing to buying short-term state govt debt, even with a modest lag, would instantaneously stabilize the muni mkt

State governments are already subject to balanced budget laws that constrain their ability to take on countercyclical policy measures. They are also critical to delivering the adequate to what is simultaneously a public health crisis and a severe business cycle shock

We want states to take ambitious measures to respond to the current public health crisis. We do not want state governments penny-pinching because of a frozen muni market and other arbitrary financial constraints.

This crisis deserves a full-scale response

Section 14(2)(b) allows the Fed to buy muni debt of a maturity no longer than six months. The Fed should make us of this authority for as long as is necessary to get through this public health crisis, just as it did with its purchases of 1- & 3-month commercial paper in the GFC

The Fed has the credibility such that a longer commitment to purchase short-term state government debt will have significantly positive spillover effects to the entire market for state government debt.

Last week's price action is precisely what asset purchases can address

Section 14(2)(b) is very clear that the Fed has the necessary authority here. There is no bending or straining to interpret the statute involved here. The authors of the Federal Reserve Act were not blind to our federalist structure

As a final note, I want to make clear that while @BuddyYakov and I are providing a roadmap towards instantaneous action, others have been highlighting the Fed's authority in this regard for some time, including @RashidaTlaib, @rohangrey, @JWMason1 and @rortybomb

Now is also as good a time as ever for people to go back to @JWMason1 and @rortybomb's 2017 proposal for expanding the Fed's toolkit.

rooseveltinstitute.org/wp-content/upl…