The Fed's power over our economy

The Fed is a powerful department of our government, able to print limitless amount of money quickly and easily to help in times of trouble. Our country is currently in a deep recession, and the Fed is now going to print about 1 trillion dollars worth of money to buy "up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac". With the Fed's tool of open-market operations, they hope for money supply to increase, interest rate to decrease, and investment to increase, causing an overall expansionary effect on our economy. With easier credit lending, banks will feel safe lending to those in need, who will in turn use that money to buy consumer goods, or invest in the stock market. This will hopefully yield an escape from our recession, and bring us to the positive slope of the business cycle. The Fed is able to do this easily as they have instant speed and flexibility, as well as isolation from political pressure.

In my opinion, I think that this plan may work in the short run. Already in the past week the stock market has grown to mid 1700's, and even Fannie Mae, and Freddie Mac stocks have increased about a quarter of a dollar. Bank stock prices have also increased, which may lead them to begin lending again, just as the Fed is trying to do by employing their open-market operations tool. The big thing which I am concerned about is the fear of rapid inflation in the future. This may occur due to this massive printing of money, which may cause the Fed to sell securities. This will cause a decrease in money supply, increase in interest rate, and a decrease in investment. This may yield a displacement of 0, only prolonging the effects of our housing crisis.

http://finance.yahoo.com/news/Fed-to-buy-up-to-300B-apf-14679757.html