by Norbert J. Michel, Stephen Moore
The Heritage Foundation
August 14, 2014
More than five years after the 2008 financial crisis, the Federal Reserve’s role is still the subject of much debate. The fact that the Fed provided credit to financially troubled firms and now holds many of the bonds of these same firms on its balance sheet has caused many to question the financial strength of the Federal Reserve itself. Policymakers have expressed concerns over the amount of Fannie Mae–issued and Freddie Mac–issued mortgage-backed securities that the Fed now holds. These purchases appear financially risky because they include some of the very same assets—the so-called toxic assets—that led to the financial crisis. The creation of money through these Fed asset purchases raises concerns about the stability of the dollar and the specter of an inflation spike in the future. This Heritage Foundation Backgrounder discusses the Fed’s recent policies and their implications.