The Federal Reserve (FED) on main stage: navigating by forbidden waters

Abstract

The main imminent threat of the pandemic to the US economy is the increase in corporate and government indebtedness. The Federal Reserve has acted spectacularly in supporting credit, and this is just the beginning of a long story. Federal Reserve support of credit mechanisms was already underway before the COVID-19 crisis. New grades have been reached and new paths are currently being opened, such as direct loans to companies by the FED. The limits are, however, enforced for political and ideological reasons: as mentioned earlier, there was no policy aimed at preserving the companies' sales revenue. The continuation of the new trajectory of very low interest rates and direct financing from the Federal Reserve will face strong resistance from financial interests. This would transform banks as lenders into mere intermediaries in granting loans (charging fees to borrowers), as is already the case with non-bank financial intermediation.