What is the primary responsiblity of the Federal Reserve System?
Recently, as a response to the economic crisis, the Fed has engaged in quantitative easing (QE). QE involves purchasing treasury securities directly from US treasury auctions in attempt to keep interests low (particularly on the 10yr treasury bond). By increasing demand for treasuries, the price also increases which pushes their yields (interest rates down). Also through the TALF facility the federal reserve is authorized by congress to purchase securities backed by small businesses, student loans and residential & commercial mortgages to ensure there is enough liquidity for these loans to continue to be made. These drastic policies adopted today are sometimes referred to as the Fed “expanding its balance sheet”. Some economists feel as if these actions will run counter to the Fed’s objective of price stability (ie lead to inflation in the medium to long term), while others feel this has been a necessary step in stabilizing the financial system (objective 3) and will eventually cause t
