The Fed’s Liquidity Confusion

by Thomas L. Hogan
The American Institute for Economic Research

The most essential function of the Federal Reserve is to provide money, or liquidity, to the financial system. The Fed is responsible for ensuring that the supply of money is equal to the total amount demanded. It is not responsible, however, for ensuring that each company and municipal government has sufficient cash to meet its obligations.

Fed Chair Jerome Powell recently testified to Congress regarding the Fed’s response to the coronavirus outbreak and lockdown. In addition to cutting interest rates to near zero, Powell described the Fed’s “forceful measures in four areas:”

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