Federal Reserve: Bonds verses Stocks
The Federal Reserve uses treasury bonds, gold, and notes or bills to support the nation's economy. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. Could the Federal Reserve without drawbacks conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange?
No, I do not think the Federal Reserve could conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange. The values of stock change or affect the prices of stock just by the actual actions of buying stock. If the Federal Reserve came into the stock market, then the Federal Reserve would increase the demand level and with increasing demand the prices would go up.
The New York Stock Exchange has over decades been a way from many people to make money; however, just like any thing the exchange has its ups and downs. The stock exchange's daily Dow Jones Average swings upward and sometimes falls downward, because of this a link between monetary policy and the stock exchange would be quite interesting and almost devastating. Stock prices are among the most closely watched asset prices in the economy and are viewed as being highly sensitive to economic conditions. Stock prices have also been known to swing rather widely, leading to concerns about possible bubbles or deviations of stock prices from fundamental values that may have adverse implications for the economy. Changes in the monetary policy affect the stock market at the time they are announced, but these changes are not the major influence on equity prices, it is the unan ...