Why the Fed’s focus on those hardest-hit by the pandemic matters for markets
By Joy Wiltermuth

Hoovervilles, the shantytowns built in New York City’s Central Park and other open spaces during the Great Depression, became a lasting image of a decade scarred by soaring unemployment and hunger….Karen Petrou, a banking policy expert who recently finished writing a book called “Engine of Inequality,” about the pitfalls of Fed policy, wants the Fed to stop relying on “bad data” to inform its decisions, while ignoring the fact that the U.S. no longer has a “large and vibrant middle class.”  She also wants the Fed to promptly say it is opposed to keeping interest rates low as economic activity picks up, and to stop providing an “ironclad” safety net for sectors like the U.S. high-yield bond market. “You take a risk, you pay the price,” Petrou, the co-founder Federal Financial Analytics, Inc. told MarketWatch, while warning that Fed backstops, including its slate of emergency lending facilities rolled out last year, create an “acute moral hazard” that could be “potentially terminal, with markets expecting the Fed always to rescue them.” U.S. corporations borrowed record amounts of debt in the bond market during the recent years of ultra low interest rates.