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The Fed Got a Big Pile of Cash to Help the Economy. Who Will Benefit?

But officials have stopped short of buying local debt outright, and many lawmakers are urging them to think bigger. Designing a direct-purchase program is no easy task for the Fed, because state and local debt markets are complicated — and direct purchases could leave the Fed bolstering some places, like New York State, while leaving others, like Detroit, with little help.

It could be well in excess of $4 trillion, but it might not. Treasury funding has been scaled up about 10 times so far, but some future projects are likely to be riskier, and any program catering to less-safe companies might require more insurance from the Treasury Department. If that’s true, the dollars can be leveraged fewer times.

It could also be the case that America’s banks and businesses do not demand $4 trillion in loans, in which case some of the pool could go untapped.

Short answer: Mr. Powell himself probably doesn’t know. The timeline hinges on how quickly the Fed can figure out America’s needs, determine how best to meet them and set programs up. The initiatives are legally and practically complex, so they can take a while: The project that targets the commercial paper market was announced on March 17 and is still not operational. Others are already in action.

That’s the $4 trillion question. Because it is unclear how long the coronavirus is going to last, it is also unclear how much lending will be needed. Design could also matter a lot here: If the programs are poorly targeted or have too many strings attached and companies won’t use them, even seemingly hefty programs might do little to help the economy.

It’s also unclear how the pie will be divided. So far, $30 billion in pre-existing Treasury funding backs programs for big companies, $10 billion backs the program for households and small businesses, and $10 billion backs a program for money market mutual funds, which touch both big businesses and ordinary families. (One program, focused on the plumbing of the banking system, does not require Treasury backing.)

“I will be watching your actions carefully,” Senator Elizabeth Warren, Democrat of Massachusetts, warned Mr. Powell and Mr. Mnuchin in a letter on Tuesday.


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