Smells Like Couture
New member
the best answer? From February 2009 through February 2010, the Fed bought massive amounts(over $1 trillion of mortgage backed securities issued by or guaranteed by Fannie Mae and Freddie Mac.) Over the same time period, the volume of lending by commercial banks grew little if at all as banks tightened their lending standards. The Fed has announced the end of this program of large regular purchases of agency securities.
a) Why did the Fed engage in such high volume purchases of mortgage backed securities?
b) Explain the effect of these purchases on the level of bank reserves.
c) What potential difficulties for the Fed in implementing monetary policy are created by its very large holding of these securities in its portfolio?
d) How will the Fed's recently won authority to pay interest on Bank reserve deposits assist it in managing the difficulties you mentioned in part C?
a) Why did the Fed engage in such high volume purchases of mortgage backed securities?
b) Explain the effect of these purchases on the level of bank reserves.
c) What potential difficulties for the Fed in implementing monetary policy are created by its very large holding of these securities in its portfolio?
d) How will the Fed's recently won authority to pay interest on Bank reserve deposits assist it in managing the difficulties you mentioned in part C?