On Mar. 26 2020, the Federal Reserve’s Balance Sheet Tops $5 Trillion for First Time. Is the Fed's spending capped at some maximum?

I studied in Canada and am ignorant of U.S. I'm asking about just Fed, not US govt. I quote MarketWatch

In an NBC News interview aired Thursday [Mar. 26 2020] on “The Today Show,” Fed Chairman Jerome Powell said there was essentially no limit to the Fed’s emergency lending ability.


“We can continue to make loans, and the point of all that is to support the flow of credit in the economy to households and businesses,” he said.

The Fed is only limited by how much backstop it gets from the Treasury Department.

  • $\begingroup$ Note that what the gov't as a whole can do vs what the Fed can are somewhat different questions. $\endgroup$ Commented Mar 28, 2020 at 4:58
  • $\begingroup$ As Chairman Powell constantly reminds us, the Fed has "lending powers", not "spending powers". $\endgroup$ Commented Jun 7, 2020 at 7:13

3 Answers 3


There’s no real dollar cap on what the Federal government can do, rather the limit is on what is available to buy, and how much it is willing to spend. (There are various institutional limits on spending, but those limits can be raised. This is what allows the size of government to grow in line with increasing nominal GDP.)


  • It can only buy as much medical equipment as is available for sale. (As noted in a comment, it can use emergency powers to increase the supply, but purchases are still limited by what is in inventory and what can be produced in a given period of time.)

  • If it lends to a corporation (a big part of announced packages), there are limits to how much they want to lend to them, based on the size of the firm, etc.

One can point to limits that are created by the structure of the bond market. This limit is fuzzy, and there is no well-defined “cap.” One can point to the experience of World War II government finance as an example where the government modified how borrowing operations worked to eliminate restrictions created by the bond market.

  • $\begingroup$ If we consider that Trump ordered GM to start making respirators (not sure how legal that is), the gov't (but not Fed alone) can surely create supply as well, of the stuff they need. $\endgroup$ Commented Mar 28, 2020 at 4:59
  • 1
    $\begingroup$ Trump initially sent a tweet (!), which had no legal basis, but he followed up with a defense production order, which is a legal emergency order. Yes, it means that there is some stuff to buy, but they can’t buy more from them than can be physically produced. Since they need the ventilators quickly, that is a big constraint. $\endgroup$ Commented Mar 28, 2020 at 12:37

Some estimates on what the Fed can do:

The embrace of QE Infinity is clearly a groundbreaking move. But is QE Infinity limitless in reality? No quite.

Analysis done last week by Bank of America Securities shows the Fed could spend up to $US8 trillion.

The bank says the Fed holds 15 per cent of marketable US debt excluding bills, noting that it holds a large portion of debt with maturities of between 15 years and 22 years.

Noting the Fed's 70 per cent limit on holding each issue leads Bank of America to conclude $US8 trillion is the potential upside number.

However, the Fed is limited to $US1.5 trillion in US Treasuries with a maturity of 15 years or more.

At this point, the Fed has committed to not buy government debt in the primary market.

That means it won't buy debt freshly issued by the US Treasury, of which there is a likely tsunami coming given the big ticket stimulus set to flow through the economy once Congress gets its act together for the sake of avoiding an economic catastrophe.

But until that stimulus gets approved, the Fed is set to shoulder the responsibility to support the faltering US economy and a highly stressed financial system by itself.

But the reality is that unconventional monetary policy can't do it alone. The Fed can do a lot but it legally can't put money directly into the pockets of Main Street.

(Obviously that was written before the $2T stimulus by Congress, but the latter doesn't seem to impact the analysis of what the Fed can do.)

Also, if I'm not mistaken, [for comparison] the Bank of Japan didn't shy from buying their government's bonds, so the BoJ ended up owning 45 percent of the Japanese government bond market by 2018; it was actually a bit more before, two thirds in 2016.

Note that what the Federal gov't as a whole can do vs what the Fed can are somewhat different questions.

If we consider that Trump ordered GM to start making ventilators, the gov't (but not Fed alone) can surely create supply as well, of the stuff they need. (This obviously comes with opportunity cost, like most government [direct] interventions in the economy.)

And if you somehow care about the current pace of the Fed...

They couldn’t buy \$75 billion a day forever, so “stepping it back slowly” to $60 billion “makes sense,” said Thomas Simons, a money market economist at Jefferies LLC. “They’ve been having a few of the purchases under-subscribed so that’s a sign they don’t have to go full bore.”

At this pace the Fed will have bought almost $1 trillion dollars of Treasuries by end of next week.


The New Deal cost an estimated 50B in federal spending over 7 years from 1933 to 1940, or about 7B per year. At that time GDP was 60B, so it added about 11% of additional federal spending.

In contrast the 2T of stimulus just passed is about 10% of gdp in additional Federal spending. Whether this continues is yet to be seen, but odds are good we see at least 10T in fiscal stimulus over the next 2 or 3 years.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.