<p>In the first two days in which the Fed's corporate bond program started buying ETFs, purchases totaled around USD305m. The size of the program is much larger, and it would seem very reasonable to assume fund managers will know this and proceed to frontrun the Fed. </p>

<p>In light of that, I'm curious if this program will result in a pareto improvement for the (financial) economy, but will set that issue aside for the purposes of this question.</p>

<h2>Question</h2>

<p>Is there any policy lever the Fed can attempt to use to address the moral hazard / frontrunning dilemma that seems it will be facing in the weeks/months ahead?</p>

CC BY-SA 4.0
2020-06-04T23:54:56.037Z
https://www.hellenicshippingnews.com/fed-promised-to-buy-bonds-but-is-finding-few-takers/ includes the statement (probably a quotation) "The central bank wants markets to react to policies when they are announced, rather than waiting for them to be enacted, which can take weeks or months"
Henry
CC BY-SA 4.0
2020-05-15T10:58:30.977Z
Front-running of the Fed reduces the amount of intervention required.  The Fed is ultimately trying to reduce the cost to businesses of borrowing money, which corresponds to buying corporate bonds with the aim of raising bond prices. If bond prices rise on the announcement before the purchases take place then the job is half done.
Henry
CC BY-SA 4.0
2020-05-15T15:15:30.813Z
The comment by @Henry appears to be the answer.
Brian Romanchuk
<macroeconomics><monetary-policy><federal-reserve>
How can the Fed realistically address the issue of frontrunning (in the context of its ETF purchases)
Arash Howaida
# How can the Fed realistically address the issue of frontrunning (in the context of its ETF purchases)

(Asked by: username_0 on 2020-05-15)

In the first two days in which the Fed's corporate bond program started buying ETFs, purchases totaled around USD305m. The size of the program is much larger, and it would seem very reasonable to assume fund managers will know this and proceed to frontrun the Fed.

In light of that, I'm curious if this program will result in a pareto improvement for the (financial) economy, but will set that issue aside for the purposes of this question.

## Question

Is there any policy lever the Fed can attempt to use to address the moral hazard / frontrunning dilemma that seems it will be facing in the weeks/months ahead?

**Tags:** macroeconomics, monetary-policy, federal-reserve

> **Comments:**
> **username_1**: Front-running of the Fed reduces the amount of intervention required.  The Fed is ultimately trying to reduce the cost to businesses of borrowing money, which corresponds to buying corporate bonds with the aim of raising bond prices. If bond prices rise on the announcement before the purchases take place then the job is half done.  
> **username_2**: The comment by @username_1 appears to be the answer.  
> **username_1**: https://www.hellenicshippingnews.com/fed-promised-to-buy-bonds-but-is-finding-few-takers/ includes the statement (probably a quotation) "The central bank wants markets to react to policies when they are announced, rather than waiting for them to be enacted, which can take weeks or months"  

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## 0 answers

