Feds & Stock Market
Feds and the Stock Market
In the past, the Federal Reserve has used the purchase and sales of bonds to stabilize the money supply. This is because bonds are a no loss resolution to the stabilization process. The sales and purchase of bonds have a definite return and this is why it is the best solution. Although there are other tools available for this process, most of these tools do not have the stability and the definite return that a bond produces.
Open market operations are the main source that the Federal Reserve utilizes in order to control the money supply. This means that they increase or decrease the money supply through sales or purchase of government bonds. The Fed is constantly buying and selling Federal Bonds in order to influence the level of reserves in the banking system. Nevertheless, they do not purchase these from the government directly. These purchases are made through security dealers who compete in the market. This is where the term open market comes from.......
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