Earlier quoted context omitted.
It is the answer when the shortage is an abrupt, acute disruption in the money supply. A massive number of people were made unemployed by the pandemic. We had lines at food pantries stretching miles long. If you recall, at the beginning of the pandemic we we had farms ploughing under crops for lack of demand. Potatoes stacking up to high heavens, farmers offering them free to anyone who'd arrive with a bag to transpo…
We didn't have an abrupt, acute disruption in the money supply, though - at least not a negative one. The quantity of money available went up by 40% in March 2020, and velocity went down correspondingly. We had an abrupt, acute disruption in the labor supply: people were unable to work. We also had large disruptions in trade and in demand. This is not 2009, when there were plenty of people available to work, there wa…
I will abuse this opportunity to talk about why inflation is necessary and why the current way of merely increasing the money supply did not cause inflation.
Dollars are like flour. Just another commodity that can be bought. Instead of benchmarking assets against the dollar we start benchmarking the dollar against a theoretical benchmark currency that always retains its value perfectly and never changes. I will call this benchmark "Effort".
For simplicity we will assume that on day one the value of the dollar is exactly 1 effort until the value of the dollar changes (either through a reduction or increase in money supply).
If the dollar is deflationary and the supply goes down over time then it will become worth more than 1 Effort. As I said earlier the dollar is a commodity just like anything else. This means that if the supply of the dollar shrinks then there is a shortage of dollars, exactly the same way there could be a shortage of houses or a shortage of food. We must create more dollars until the dollar is worth around 1 Effort again.
The question is, where is that supposed shortage of dollars? Who exactly is desperate for liquid cash? Definitively not publicly traded companies and their owners. Holders of cryptocurrencies? Maybe but we are reaching deep into trickle down economics because of the small portion of retail traders. There is a case to be made for infrastructure investments and maybe unemployment benefits/stimulus checks but even then the amount of money that is truly needed isn't enough to explain why the quantity should be increased by 40%.
The only thing that is certain is that the wealth transfer effect is not considered undesirable by the Fed and that they would do it again, even if it doesn't solve any real problems.