The Fiscal Fed

The US Federal Reserve System is conventionally understood as a private-market stabilising institution that has no settled role in supporting the fiscal power of the Treasury. Contra that view, this article argues that the US central bank has always had an extensive fiscal role: building, smoothing and rescuing US Treasury debt markets. Employing a long-duration institutional analysis which draws on the empirics of the Fed’s internal deliberations, financial transactions and legal framework, the Fed’s fiscal functions are explored with a particular focus on operations during the World Wars, the Great Depression, the Cold War, the Global Financial Crisis and the COVID-19 Pandemic. In each period, the Fed’s main fiscal instrument was large-scale debt purchase programs, buttressed by other direct and indirect credit transactions with the Treasury. A deeper understanding of the Fed’s fiscal functions has implications for the constitutional design of economic institutions and legal-theoretic accounts of the financial system.