Featured Answer

Asked on

How does the fed buying securities stimulate the economy?

Answers (2)

Collapse
3ojmofafaa profile image
Collapse
squsqgx0aa profile image

The Feds often buy notes and bonds in the open market to provide liquidity (cash). The investors they buy the bonds from will usually put that cash to work by investing in other companies, ventures, ideas, etc. that offer better returns than bonds would. Or they will buy bonds from banks, who in turn should offer loans to customers (to buy cars and houses for example) and businesses (who buy equipment, inventory, etc.).

Likewise, the Fed can drain liquidity from the market by offering bonds at a more attractive rate than investors or banks can get otherwise (risk adjusted).

Rarely does the fed buy securities such as stocks.