The Fed’s unprecedented response to the COVID-19 crisis was merited by the bleak economic outlook, but it could amount to a Faustian bargain.

In severe cases, the novel coronavirus can cause labored breathing (dyspnea), which progresses into acute respiratory distress in critical cases. Mechanical ventilation is one of the few tools for alleviating such distress: Pumping oxygen into a patient’s lungs serves as a form of life support until the symptoms subside. This kind of palliative care does not, however, combat the virus itself, and pressurized oxygen can exacerbate lung injury by damaging unaffected areas of the lungs.

The economic fallout from the coronavirus has caused its own kind of oxygen shortage in the markets: a liquidity shortfall. The financial system relies on the constant flow of money. If that flow is halted, it can aggravate any underlying distress.

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As public-health officials raced to procure ventilators, economic policymakers put the financial system on life support with massive infusions of cash. First, the Federal Reserve stepped into the Treasury and repurchase-agreement markets, where demand for cash had raised short-term borrowing rates. The Fed’s purchases of short-term debt allowed financial markets to withstand some of the pressures of the coronavirus selloff. Soon thereafter, the Fed intervened in the commercial-paper and money markets as well.

Those interventions did not stave off a bear market, which hit in mid-March as the pandemic spread through the U.S. In response, the Federal Reserve Open Market Committee brought interest rates to zero and initiated quantitative easing, buying assets from banks. While unprecedented in magnitude and haste, the Fed’s measures would have a muted impact: Lowering borrowing costs increases aggregate demand in normal times, but the pandemic has made most forms of consumption virtually impossible. Still, Fed chair Jay Powell made clear that he was willing to take forceful, immediate action to buoy markets, and investors took note: The selloff receded.

Then, in an unprecedented move, the Fed stepped into corporate-debt markets directly. Instead of channeling liquidity through banks, in keeping with long-held norms, the Fed took on the role of lender of last resort to corporations themselves. Its Primary and Secondary Market Corporate Credit Facilities extended credit to investment-grade firms and even “fallen angels” that had suffered rating downgrades in the pandemic’s wake. The new lending facilities, which also included municipalities and medium-sized businesses, turned the Fed into the single biggest debt-originator in the U.S., with its balance sheet growing at a rate of $41 billion a day.

Under monetary easing mediated through financial institutions, the Fed brings down borrowing costs by reducing the risk-free interest rate, but asset prices still reflect the idiosyncratic risks. By holding debt in corporations directly, the Fed indiscriminately suppressed risk premia, such that firms disproportionately impacted by the COVID-19 crisis would face similar borrowing costs to those less affected. Seeing that the Fed would prop up corporate balance sheets irrespective of risk, investors piled into risk assets. With the money machine running full throttle, the shortest bear market in history turned into a rally: Stocks gained 30 percent from their March 23 bottom.

As with mechanical ventilation, however, liquidity provisions do not treat the underlying disease: Economic shutdowns persist, and no COVID-19 treatment or vaccine is yet available. Market exuberance has not kept 30 million Americans from filing for unemployment. Constrained by an inability to take risk and by limits on the size of its holdings, the Fed can only put a floor under asset prices for so long. The sugar rush of money-printing now seems to be running out. With the S&P 500 index down roughly 4 percent over the past two days, warnings from investors that equities would test new lows are coming to fruition.

Should asset prices continue to fall, it’s safe to assume that the Fed will take further action. At the FOMC press conference on Wednesday, Powell pledged to use his “full range of tools to support the U.S. economy,” including an expansion of current loan programs. But he also emphasized the need for more fiscal stimulus, signaling that the Fed cannot carry water for Congress indefinitely. While an initial $2.2 trillion Senate spending package passed with relatively little partisan bickering, the growing dispute over state bankruptcies suggests that future stimulus debates will be more contentious.

Though Powell’s approach is merited by the bleak economic outlook, it could amount to a Faustian bargain. If he lets asset prices fall in the coming weeks and months, the big bazooka of accommodative policy early in the crisis will have been for naught. Bailing out a divided Congress with further monetary accommodation will make fiscal stimulus less likely. But digging in further will require an even greater divergence from conventional monetary policy, and feed into the mispricing of risk in asset markets. Financial markets cannot remain on life support indefinitely.