M&B3 3rd Edition by Dean Croushore

Exercise 8

In the late 1990s, the Fed worried about the possible disappearance of government securities as the U.S. government ran larger and larger surpluses. Because the Fed uses government securities for its open-market operations, this posed a problem. The Federal Reserve Act does not allow the Fed to buy or sell securities held by private companies with its open-market operations, only U.S. government securities or federal agency securities. What could the Fed do to replace government securities in its portfolio Would it be wise for the Fed to ask Congress to allow it to own securities in private companies Would there be any drawbacks to such a procedure If this is not done, what can the Fed do