There might be a misunderstanding of what the goals are. Let's read what the Fed says and writes.
Fed buys "... treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions."
There are two goals in that sentence:
(1) "market functioning" means liquidity, the ability to buy and sell assets without affecting price significantly. Fed assures that there is a buyer for the assets with a reasonable price. (how they determine 'fair' is nuanced, interesting reading).
(2) "effective transmission of monetary policy". Monetary policy means control of the money supply. When Fed buys MBS from the market, the seller gets the money. Now the seller must decide what to do with the money. Consume (good), invest (good), keep in money like assets (accept very low return).
ps. Fractional reserve banking has not been the main money supply mechanism for a over a decade. OMO is used instead.
Re 1: There's a separate line item for liquidity, for which they allocated 2.14 T and spent only ~2 B. They want the price of agency mortgages to be higher. I object to this manipulation as prices in a free market convey a lot of information. I reject the idea of "fair" as determined by a central agency, no matter how nuanced they are. Central planning does not work.
Re 2, they're injecting trillions of dollars into the market through the existing asset holders of these securities (agency MBS and treasuries). That's exactly what I'm objecting to.
Since the government is already using central planning (covid-19 restrictions artificially limit demand, eviction bans) it can be considered proper that the government attempts to neutralize negative effects that come from these restrictions.
Because government's goal during covid-19 has been to suppress demand artificially (demand where people come to close contact) it's not proper stimulus (stimulus = trying to stimulate demand) it's more like emergency freeze of current situation.
There might be a misunderstanding of what the goals are. Let's read what the Fed says and writes.
Fed buys "... treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions."
There are two goals in that sentence:
(1) "market functioning" means liquidity, the ability to buy and sell assets without affecting price significantly. Fed assures that there is a buyer for the assets with a reasonable price. (how they determine 'fair' is nuanced, interesting reading).
(2) "effective transmission of monetary policy". Monetary policy means control of the money supply. When Fed buys MBS from the market, the seller gets the money. Now the seller must decide what to do with the money. Consume (good), invest (good), keep in money like assets (accept very low return).
ps. Fractional reserve banking has not been the main money supply mechanism for a over a decade. OMO is used instead.
Re 1: There's a separate line item for liquidity, for which they allocated 2.14 T and spent only ~2 B. They want the price of agency mortgages to be higher. I object to this manipulation as prices in a free market convey a lot of information. I reject the idea of "fair" as determined by a central agency, no matter how nuanced they are. Central planning does not work.
Re 2, they're injecting trillions of dollars into the market through the existing asset holders of these securities (agency MBS and treasuries). That's exactly what I'm objecting to.
Since the government is already using central planning (covid-19 restrictions artificially limit demand, eviction bans) it can be considered proper that the government attempts to neutralize negative effects that come from these restrictions.
Because government's goal during covid-19 has been to suppress demand artificially (demand where people come to close contact) it's not proper stimulus (stimulus = trying to stimulate demand) it's more like emergency freeze of current situation.