On Mar 12 2020, US Federal Reserve injected "$1.5T of liquidity into the markets, rather than that amount of money".
On Mar 18, CARES Act came into force and will pay out $2 trillion USD.
On Apr 8 the Federal Reserve released minutes from meeting where it took rates to zero because of coronavirus

Miller said he expects the Fed balance sheet, currently just shy of $6 trillion, to expand to $10 trillion or more.

On Apr 9, the Federal Reserve will print $2.3 trillion USD to buy junk bonds and lend to states in a new wave of stimulus.

My questions

  1. Why did Congress need the CARES Act? Why didn't it just recommend that the Federal Reserve spend $2T USD, which looks way easier? I know that the Federal Reserve is autonomous and Congress can't order the Federal Reserve to do anything.

  2. Similarly, Senate Democrats block $250 billion in small business relief, accuse McConnell of a "political stunt" : politics. Why didn't Congress Members just recommend the Fed spend another $250B,?

  3. As you can see from the points above, both sides criticized and haggled before enacting the CARES Act. But the Federal Reserve has spent way more than $2.250T! Isn't this a contradiction? Why haven't Congress Members criticized or haggled the Federal Reserve like Democrats and Republicans are criticizing each other in Congress?

  4. Doesn't the CARES Act prove that the Fed isn't spending, or hasn't spent, enough money on the the right people? If the Fed was giving money to the right people, then would the US need the CARES Act?

  • 1
    Fed "injected" (past tense) $1.5T by March 12 is wildly inaccurate. Do read the actual sources instead of the Reddit rendering thereof. – Fizz Apr 10 at 4:26
  • 1
    Besides you assumptions being riddled with inaccuracies, from the helicopter [i.e. ignoring who gets this money], why do you even think $2T (or even $4T) is enough to compensate the downturn? – Fizz Apr 10 at 4:32
  • Related: politics.stackexchange.com/q/50968/28994 – CDJB Apr 10 at 4:40

Broadly speaking, the Fed can only keep markets liquid by doing things like buying assets or making loans to banks against assets owned by the banks. That's awesome if you're worried that mortgage-backed securities are tanking in value and the Fed can come along and prop up their value until the panic is over. That's a concern today but it was a much bigger concern back in 2008 when the housing bubble burst. It is useless if your goal is to get money into the hands of people or small businesses that need it to pay rent or pay their mortgages today. If Congress wants to get money to those folks, it has to pass legislation to spend the money.

Fed spending is also very different from Congressional spending because the Fed is generally buying (or lending against) assets, it's not generating spending that drives demand. Most of the Fed's $1.5 T involves going to banks that have some assets and saying "Hey, nice assets. We'd love to give you a cheap loan if you put those assets up as collateral." That ensures that banks have plenty of money on hand to be able to lend out and ensures that there is a willing buyer for whatever assets the Fed is lending against. Eventually, though, banks are going to give the Fed back that $1.5 T with a small bit of interest.

| improve this answer | |

Not the answer you're looking for? Browse other questions tagged .