You’ve heard of Helicopter Ben Bernanke. What about Bazooka Ben? Barclays Capital strategist Michael Pond thinks it’s time for the Federal Reserve to pull out the really big guns and announce it will buy $1 trillion in U.S. Treasury debt in order to counteract a recent jump in Treasury and mortgage interest rates.
The Fed has already said it would buy up to $300 billion, but this week’s bond market drama suggests that investors are beginning to worry that this isn’t enough.
“We tongue-in-cheek believe that the Fed needs to take the approach from former Treasury Secretary Paulson’s quote at a July 15 Senate Banking Committee meeting that ‘if you have a bazooka in your pocket and people know it, you probably won’t have to use it,’” Pond wrote in a note to clients. “While this didn’t work for Secretary Paulson, as he eventually had to use that bazooka and more, the Fed should try to come up with a big enough number that the threat of that purchasing power alone will be enough to keep rates low. For now, we believe that number is $1 trillion and recommend that the Fed make an announcement soon, rather than wait for its June 24 meeting.”