Purchases of U.S. Treasury securities by the U.S. Federal Reserve in 2009 have
prompted concerns that the Fed may monetize debt issued by the federal
government, an act with potentially inflationary consequences. Whether such
concerns are warranted depends in large part on the amount of Treasury
securities the Fed purchases. So long as the Fed’s total ownership of
Treasury securities does not exceed the amount of currency in circulation, the
Federal Reserve will not be monetizing the federal government’s debt.