That is the immediate crisis the Fed is facing. In the last two weeks, access to cash has been drying up, with interest rates spiking for corporations, state and local governments, individuals who might want a mortgage — and even, for a time, the United States Treasury, the most worrying trend of all.
The Fed has a power no other entity in the world possesses: the capacity to create dollars out of thin air. It is beginning to use it to try to prevent the coronavirus crisis from also becoming a financial crisis.
In just the last several days, it has deployed that power to pump those dollars into the financial system to combat this freeze, including by buying vast sums of Treasury bonds and mortgage-backed securities, extending “swap lines” to international central banks to ensure dollars are available around the world, and reintroducing programs from the 2008 crisis to prop up short-term corporate borrowing and money market mutual funds. On Friday morning, it expanded its money market fund program to help support lending to state and local governments.
That is a breakneck speed for the typically cautious, deliberative central bank.