Does the Fed Have the Legal Authority to Buy Equities?
Confessions of a Supply Side Liberal (economics blog), 2015
5 Pages Posted: 10 Dec 2016
Date Written: March 19, 2015
This short piece, an invited contribution to Miles Kimball's economics blog, considers the scope of the Federal Reserve's power to conduct so-called unconventional monetary policy. There is no decisional law in this area, and relevant statutory and regulatory guidance is extremely limited.
Acknowledging this legal uncertainty, the piece contends that the Fed may nevertheless enjoy greater power to conduct unconventional policy than is currently assumed, including the power to purchase equities on the open market. It further argues that a decision by the Fed to buy equities would probably receive Chevron deference, meaning it would be difficult to overturn judicially. Finally, as a practical matter, the piece argues that the difficulty of meeting standing requirements—i.e., the obligation of plaintiffs to demonstrate a concrete, particularized harm flowing from a policy decision to buy equities—may constitute an insuperable barrier to legal challenges.
In sum, a decision by the Fed to purchase equities on the open market may be lawful, virtually impossible to challenge in court, or both.
Keywords: federal reserve, unconventional monetary policy, quantitative easing, Chevron
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