Question

In what ways do the Fed's balance sheets are changing in response to the current crisis?

Answer 1

Federal Reserve balance sheet are changing because the federal reserves are trying to raise more debt in order to increase the liquidity into the system as it can be seen that federal reserve is cutting down on the interest rates and it is also trying to infuse the Liquidity into the economy by cutting down the Reserve requirement and entering into the open market operations by purchasing all the securities from the market so it is leading to Liquidity into the economy because the Federal Reserve is wanting to stimulate the demand into the economy and it is also trying to cut on the interest rates and adopt the quantitative easing policy which will be helpful in organisation of monetary policy in a better way so that there would be proper liquidity infusion and credit availability which will be helping in stimulation of demand and stability of economy in the long run

Hence there is a deficit on the books of federal reserve to large extent.