JAPANIFICATION: Federal Reserve could buy stocks as part of QE infinity

The Japanification of the United States continues?

The Federal Reserve might take a page out of the playbook from the Bank of Japan (BoJ) and the People’s Bank of China (PBoC) and become a shareholder in American companies.

Last week, the U.S. central bank announced quantitative easing infinity that consists of buying assets without any ceiling in place. The announcement also included that the Fed would start acquiring corporate bonds for the first time in its century-long history through exchange-traded funds (ETFs).

What would stop it from buying stocks? Nothing at all.

A lot of Wall Street analysts think this is the next likely scenario for the Fed, even before launching subzero interest rates.

Quincy Krosby, chief market strategist at Prudential Financial, told CNBC:

“If there were any major dislocations, it is clear that they will go into whatever nook and cranny in the market that starts to choke. We know that when you have choking in one part of the market, you have choking in another part of the market that leads to dislocation. As soon as you cross that line, you are now facing something else that you could conceivably buy.

“Nothing is out of the question. The question is, will it be needed? Has the Fed done enough to stabilize markets to ease stress so markets can function normally and properly. Everything is on the table now that was not even a potential six weeks ago.”

The Eccles Building would unlikely buy direct shares in Netflix, Boeing, or General Electric. But rather it would execute transactions in the ETF market through the S&P 500 and Dow Jones indexes.

If other central banks are doing it, then why not the Fed? The BoJ has accelerated its equity purchases to the tune of $110 billion a year, while the PBoC has been investing in state-owned enterprises for years.

Experts say, however, that the Fed would only take such drastic measures if there were a deeper decline in stocks.

The market may have bottomed out, but file this for future reference when the real bust in the business cycle occurs.