Report

InfluenceMap: Is the Fed Being Sector Neutral?

Federal Reserve Bank

Credit: KEVIN LAMARQUE/REUTERS

The Fed's recent corporate debt purchases show that it is highly overweight on the energy industry.

InfluenceMap's latest report finds that the only sector where the Fed is consistently overweight on all three indicators (debt outstanding, equity values and employment) is the GISC Energy sector which contains oil/gas and coal value chain companies exclusively. Against a corporate debt outstanding indictor, it is 2X overweight. Against equity values it is 3.5X overweight and against employment, more than 4X overweight.

The Fed's purchases (as of July 10th, 2020) is thus heavily overweight the Energy sector (containing oil/gas and coal value chain companies exclusively). No other sector exhibits this extent of overweighting. Roughly 8% (or $748Mn) of the Fed's $9.5Bn worth of bond purchase issuers to date are in Energy, with $134Mn of this being direct purchases (total $1.5Bn), the rest via ETFs. It is not clear whether the Fed in practice intends to be sector neutral in its real economy bond portfolio and if so, how it intends to achieve this given the current pace of buying.

InfluenceMap is a UK-based nonprofit, funded by a range of foundations, that publishes data-rich reports exploring the intersection of climate policy and corporate power. Other InfluenceMap reports can be found here.