According to the Wall Street Journal, in order to attempt to slow the economic contraction caused by the Covid-19 virus, the Federal Reserve has promised to inject $1.5 trillion into the economy, by

[making] vast sums of short-term loans available on Wall Street and [purchasing] Treasury securities in a coronavirus-related response aimed at preventing ominous trading conditions from creating a sharper economic contraction.

How can such a large sum of money be allocated to this without any debate or official order by the government? Where does this money come from? And how does providing loans to Wall Street help prevent the economy from contracting further?

1 Answer 1


There's no loan here. What is happening is a buyback to inject money into the system (emphasis mine)

Today the Fed announced a $1.5 trillion liquidity provision to the interbank lending market — primarily in the form of “repurchase agreements.” The interbank lending market comprises the federal-funds market (in which the Fed actively participates on a daily basis) and the repurchase-agreement (or “repo”) market (in which the Fed intervenes primarily when there is a lack of liquidity). In the repo market, one financial institution temporarily trades securities to another institution, with the understanding that it will repurchase those securities in the near future (usually the next day). Banks with large balance sheets often need access to quick cash to conduct regular operations, and the most practical way to get that cash is through repos. Otherwise, managing their balance sheets would be needlessly onerous.


[The Federal Reserve] is engaging in short-term transactions with banks to ensure financial stability. If the Fed bought your house today and sold it back to you tomorrow, it wouldn’t be doing you a huge favor. The Fed’s intervention in the repo market, while a boon to the U.S. financial system, is far from a handout.

  • 7
    So, it's more that they're injecting $1.5T of liquidity into the markets, rather than that amount of money?
    – Bobson
    Commented Mar 13, 2020 at 19:26
  • 2
    @Bobson Correct. Banks are selling things to the Fed, with the understanding that the Fed will sell them back. It gives banks the cash flow they need in the short term. Normally the private market does this on its own.
    – Machavity
    Commented Mar 13, 2020 at 19:35
  • That certainly answers the OP's question (which I also had when I heard about this) about where that much money was going to come from. Thanks for clarifying!
    – Bobson
    Commented Mar 13, 2020 at 19:45
  • 9
    This crisis is very different from 2008. Now we're not only dealing with a liquidity problem. They'll surely do a lot more than this. Which shouldn't be a surprise to anyone. The economy has been on the point of collapse for a long time. And instead of fixing it, they kept inflating the bubbles and increased the deficit. It's ironic that the American electorate is so afraid of electing a socialist president, yet you control your economy like a communist country. Commented Mar 13, 2020 at 20:10
  • "If the Fed bought your house today and sold it back to you tomorrow, it wouldn’t be doing you a huge favor" - it would be giving me a 0% loan for a day. Rinse and repeat daily to get a perpetual free credit. No? Commented Mar 14, 2020 at 3:45

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