Analyzing the evolution of the FED balance, an expansion of its balance is observed in 2,200 trillion USD (+58% in a month and a half), being together with the reduction of the interest rate the two main monetary measures to "rescue the US economy" of the effects of the Covid-19 pandemic. I believe that the first consequence of this massive monetary injection in the markets has been a recovery in the stock markets, which have already exceeded 30% since March lows, and a relaxation of the returns on corporate fixed income.
But what real effects are these measures going to have on the real economy? Will this monetary policy contribute to economic growth, will they create inflation? Or are they only intended to reassure financial markets? I appreciate your contributions. Thank you.
MMT (Modern Economic Theory) would say that deficit spending is not a problem as long as it does not cause inflation, and that would not happen in a recession because the spending would not bid up the prices of goods or labor. However, in the pandemic recession, when production stopped for many goods, inflation might initially increase during shortages but should recede as supplies are resumed. If you are not family with MMT, a good intoduction is Kelton's book, The Deficit Myth.