The Federal Reserve Bank of New York’s Liberty Street Economics blog today begins a five-part series describing the System Open Market Account (SOMA), a portfolio used to support the implementation of monetary policy. The series aims to explain the portfolio—and the income it generates for the Treasury Department—by examining its history and evolution.
In today’s post, the authors provide historical context on SOMA portfolio developments, noting that while the size and composition of the portfolio traditionally has played a more passive policy role, this is no longer the case. The series will run over the next four days and will feature the following posts:
“A History of SOMA Income” describes how net income varies from time to time, and how the recent record-high remittances to Treasury should not be considered typical. The authors explain how changes in the size and composition of the SOMA portfolio were intended to promote the Fed’s dual mandate of maximum employment and price stability, and not to produce a financial return.
“What If? A Counterfactual SOMA Portfolio” examines what the trajectory of the portfolio and income might have looked like had the Fed not expanded its balance sheet during the recent financial crisis. The authors find that such a portfolio, which would have consisted entirely of Treasuries, would have generated less income in recent years.
“More Than Meets the Eye: Some Fiscal Implications of Monetary Policy” casts the fiscal implications of monetary policy for public finances in a broad context. The authors urge the consideration of all the ways that monetary policy influences the economy, and thereby the government’s taxes and expenditures – not just the more easily observable remittances to Treasury.
“Transparency and Sources of Information on the Federal Reserve’s Operations, Income, and Balance Sheet” goes through the various ways the public can access information on the Fed’s operations, income and balance sheet.
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About Liberty Street Economics:
Liberty Street Economics is a blog produced by the New York Fed’s Research and Statistics Group. The blog allows the Bank’s economists to share their research and analysis on current issues and to engage in a direct dialogue with a broad online audience. Posts on Liberty Street Economics cover topics ranging from finance and monetary policy to the regional economy and other timely issues. The views expressed in the blog are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.