Citi Research's 9-Step Guide To Fed Policy In The Event Of A Downturn

In the wake of the Brexit vote, the next Federal Reserve interest rate hike has been put on hold. Many economists still expect another hike by the end of 2016, but others are concerned that the Fed’s next move will need to be some form of easing.

Unfortunately, with interest rates near record lows, the Fed’s ability to ease is limited. However, according to Citi Research, the Fed still has plenty of options for stimulating the economy.

Related Link: There's A Link Between QE And Rising Wealth Inequality

In a new report, Citi analyst Andrew Hollenhorst outlines nine potential steps the Fed could take in the event of an economic downturn:

• 1. Stop talking about a need for rate hikes.
• 2. Start talking about leaving rates flat in the future and confirm this outlook via the “dot plot.”
• 3. Cut interest rates from 0.25-0.5% to 0-0.25%.
• 4. Implement another “twist” of selling short maturity and buying long maturity.
• 5. Implement more QE.
• 6. Cut rates below zero.
• 7. Purchase non-government assets.
• 8. Lend to banks at attractive rates.
• 9. Finance fiscal programs by printing money.

Citi still anticipates that the Fed’s next move will be tightening rather than easing, but it’s reassuring for investors to know that there is still plenty of easing options if needed.

So far this year, the iShares Barclays 20+ Yr Treas. Bond (ETF) TLT is up 14.4 percent.

Disclosure: the author holds no position in the stocks mentioned.