The Federal Reserve called a third emergency meeting to combat the economic impact of the coronavirus. Quill Intelligence CEO and Director of Intelligence Danielle DiMartino Booth joins Yahoo Finance’s Zack Guzman and Brian Cheung to discuss.

Video Transcript

ZACK GUZMAN: For more on this, I want to bring on Danielle DiMartino Booth. She is, of course, Quill Intelligence CEO, as well as a former Fed advisor at the Federal Reserve Bank of Dallas. And Danielle, you just heard Brian describe some of the things we're seeing out of the Fed, but they're moving much quicker than what we saw back in 2008 during that financial crisis-- throwing everything out. I think, realizing how serious the situation has become. Also announcing that there's not any necessary upward limit right now for QE. I think that also helping ease some fears here too.

DANIELLE DIMARTINO: Absolutely, and I think what's key to focus on right now is that when we had QE infinity the last time, the infinity only referred to the length of time the Fed was going to be actively engaged in the markets. And if you can imagine, it was $85 billion worth of purchases a month when the Fed was running QE infinity. Now they're buying $75 billion of treasuries a day, and $50 billion worth of mortgage backed securities a day.

So you're talking about, combined, $625 billion of mortgage backed security and treasury purchases every single week, and that size can increase. And furthermore, the Fed put pricing language into the statement that they have released, suggesting that if it wants to set cap yields. That it can come in and set the price in the markets. Very, very distinct verbiage and language out of the Fed that blows past anything that we saw in terms of size and discretion in order to get a handle on the treasury-- the mortgage backed securities market.

To say nothing of the fact that they're delving into short-term municipal bonds. They set up -- did the SPV entity that Brian detailed. That walks a fairly thin legal line, and also municipal bonds, they're foraying into for the first time as well. Very short-term, but nevertheless, places the Fed has yet to go

BRIAN CHEUNG: Danielle, I want to ask you a follow-up on what you just mentioned about maybe capping yields. The Fed's not doing that necessarily right now with QE infinity, as you were mentioning, but it seems like that could be something that they would follow along the lines of what the Bank of Japan is doing with their yield control, where they basically say they won't allow yields on, say, the 10 year to go above a certain level. Lael Brainard has expressed interest in that. Do you see the suspension of the limits announced today as the next step towards the Fed ultimately taking on a YCC policy?

DANIELLE DIMARTINO: I actually tweeted this out earlier. Jim Bianco put a good piece out, and I think that the Fed has, in essence, effectively put de facto yield curve control into the marketplace with today's announcement. I don't think it's something necessarily to come because, again, they specified that they are going to be the arbiter. They're going to be the determinant of prices, and that if they didn't see prices as being appropriate, that they would set that price. So the verbiage is very specific, but again, it's not an amount of securities that they're agreeing to buy. It's also the price at which they're agreeing to buy them. And because the amount is unlimited, they can, indeed, now, I think, come in with yield curve controls without having to make very much of a big announcement about it.

ZACK GUZMAN: You know, when we talk about the uncharted territory here too, I mean, we've been talking about a lot of calls for them to step into the commercial paper market here, and address stress there. It looks like the moves, so far, are working when we look at the spread in the corporate debt sector there. We've been monitoring that too. But I mean, when we're dealing with uncharted territory, it does raise a lot of questions.

We're talking about the legal questions here through all of this. Are there any concerns in terms of things that aren't getting addressed right now? I know there's a lot to address, if you are. Chair Powell, here, looking at all of this because he's already made so many different moves. Is there anything you might see potentially getting overlooked in their response, though, as they try and plug so many holes?

DANIELLE DIMARTINO: Well, and again, you're right. This is Jay Powell and everybody on the Federal Open Market Committee playing whack-a-mole in real time. But they were very measured in saying they weren't going to buy paper that had more than five years of maturity left in the open market. They were measured in how they're approaching municipal bonds. It seems to me, given my experience at the Fed, that the general counsels of the Treasury and the Federal Reserve probably haven't slept in the last 72 hours.

Trying to figure out what the Fed can and cannot do because unlimited corporate bond purchases, that's something the Fed cannot directly do, and we're not seeing large-scale municipal bond purchases such that, if say, a state such as, I don't know, Illinois or New Jersey needed to be bailed out, they're not given that much discretion and authority. Yet, again, without opening up the Federal Reserve Act, which Congress would have to do, which opens a can of worms, I'm not sure that the Fed is starting to see the outer bounds of legality without bringing congressional authority in to give them more discretion.

BRIAN CHEUNG: Danielle, you just mentioned Muni bonds. Do you think the Federal Reserve should be doing more? They did announce that they would be including Muni bonds as part of that, you know, MMLF, but they haven't necessarily committed to outright purchasing them, which they could under quantitative easing, as long as it's under six months, is my understanding.

DANIELLE DIMARTINO: And they did agree to day for very short-term municipal paper, but that's certainly not the same as, say, buying a 30-year city of Chicago bond in the primary market. And if we do start to see public pensions get in such underfunding distressed that talk of a bailout comes to pass, I think that that is something else that is coming out, potentially, of this bill in Congress is the ability to kind of find a sideways manner in which to bail out states and municipalities because we do have four states that have already gone to the White House, looking for fiscal relief.

ZACK GUZMAN: All right, Danielle DiMartino Booth bringing us the latest on that front. I want to thank Brian Cheung as well for an ample discussion of all the Fed moves in uncharted territory. Thank you, guys.