In a statement explaining how it intended at some point to normalize monetary policy, the FOMC wrote:
Question:
In a statement explaining how it intended at some point to normalize monetary policy, the FOMC wrote:
The Committee intends that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.
a. What does the Federal Reserve’s holdings of securities have to do with implementing monetary policy?
b. What securities other than Treasury securities does the Fed currently hold? How does holding these securities affect “the allocation of credit across sectors of the economy”?
Step by Step Answer:
Money, Banking, and the Financial System
ISBN: 978-0134524061
3rd edition
Authors: R. Glenn Hubbard, Anthony Patrick O'Brien