Free Markets to Fed Markets: How Modern Monetary Policy Impacts Equity Markets

Financial Analysts Journal, Forthcoming

50 Pages Posted: 8 Jun 2020 Last revised: 12 Jan 2022

See all articles by Tālis J. Putniņš

Tālis J. Putniņš

University of Technology Sydney (UTS); Digital Finance CRC; Stockholm School of Economics, Riga

Date Written: December 1, 2021


The US Federal Reserve doubled its balance sheet during the COVID-19 pandemic in the most aggressive unconventional monetary policy on record. I show that the scale and scope of these actions substantially impacted stock markets, explaining at least one-third of their rebound. The impact occurs predominantly through bond yields (discount rates) and expectations of future macroeconomic conditions (future cash flows). I find while the Fed’s balance sheet expansions are more rapid than its contractions, the stock market is more sensitive to contractions. The findings have implications for possible impacts of central banks unwinding the positions accumulated during the pandemic.

Keywords: stock markets, monetary policy, quantitative easing, liquidity, COVID-19

JEL Classification: E58, E44, E52, G12, G14, C54

Suggested Citation

Putnins, Talis J., Free Markets to Fed Markets: How Modern Monetary Policy Impacts Equity Markets (December 1, 2021). Financial Analysts Journal, Forthcoming, Available at SSRN: or

Talis J. Putnins (Contact Author)

University of Technology Sydney (UTS) ( email )

PO Box 123
+61 2 9514 3088 (Phone)

Digital Finance CRC ( email )

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
+371 67015841 (Phone)

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