Does The Fed Intercede In The Domestic Stock Market?


Here is a topic that can stand a lot more research. I think the term Plunge Protection Team is what started me thinking along these lines. I can’t remember where I first heard the term, but the Wikipedia artcile, Working Group on Financial Markets, explains the origin of the term.

“Plunge Protection Team” was originally the headline for an article in The Washington Post on February 23, 1997,[2] and has since been used by some as an informal term to refer to the Working Group.[3][4] Initially, the term was used to express the opinion that the Working Group was being used to prop up the stock markets during downturns.[5][6] Financial writers for British newspapers The Observer and The Daily Telegraph, along with U.S. Congressman Ron Paul, writers Kevin Phillips (who claims “no personal firsthand knowledge” [7]) and John Crudele,[8] have charged the Working Group with going beyond their legal mandate.[failed verification] Charles Biderman, head of TrimTabs Investment Research, which tracks money flow in the equities market, suspected that following the 2008 financial crisis the Federal Reserve or U.S. government was supporting the stock market. He stated that “If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else” and “Why not support the stock market as well? Moreover, several officials have suggested the government should support stock prices.”[9]

Now that I see Ron Paul’s name connected to this, I immediately start to have doubts. Here is a further explanation from Wikipedia.

On October 6, 2008, the working group issued a statement indicating that it was taking multiple actions available to it in order to attempt to stabilize the financial system, although purchase of stock shares was not part of the statement.[14] The government may wind up owning shares in the firms to which it provided loans, as they will receive warrants as collateral for these loans.

Here is an old article from The Fed that seems to claim that the Fed doesn’t buy stocks, or at least didn’t in 2005. (or maybe even 2008). Can the Fed conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange?

Some of the world’s central banks (including the Bank of Japan) 1, do in fact hold assets such as public stocks, but the Federal Reserve does not.

A Federal Reserve Bank Of New York article seems to deny the direct ownership of corporate stocks, System Open Market Account.

You can read all of these article, follow more links than I did, and come up with a conclusion. Good luck.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.