Limit Federal Reserve Assets

Author: Joel Griffith, Senior Research Fellow

Affordability 101 · Chapter 9: Sound Money and Capital Freedom

Plymouth Institute for Free Enterprise

Topline

The Federal Reserve’s balance sheet should be limited to short-term Treasuries to prevent the Fed from steering credit to prop up politically favored sectors such as housing, corporate debt, or equities.

Background

From the 1950s until the 2008 financial crisis, Federal Reserve open-market operations were almost always limited to buying and selling short-term Treasury securities. That discipline ended after 2008. The Fed purchased $1.25 trillion in agency mortgage-backed securities (MBS) between January 2009 and March 2010. In 2020, the Fed used its Section 13(3) emergency-lending authority to buy corporate bonds and bond ETFs. The Fed also helped accommodate massive amounts of COVID-19 “stimulus” spending by expanding its balance sheet by more than $4.0 trillion to purchase government debt in addition to MBS holdings and other purchases. As of August 2026, the Fed’s balance sheet exceeds $6.7 trillion, up 62% since the start of 2020.

Action Items (Congress)

• Enact legislation requiring the Fed to phase down its non-Treasury holdings and to limit future asset purchases to Treasuries.
• Require the Fed to swap MBS holdings for Treasury securities.
• Cap the overall size of the Fed’s balance sheet relative to GDP.
• Fully rescind Section 13(3) to prevent the Fed from establishing any new corporate-bond, corporate-ETF, or equity-purchase facility.

Limiting Fed Assets Supports Sound Money, Capital Freedom, and Affordability

• It would help prevent politically directed credit allocation.
  • Unlike the Fed, markets generally allocate capital in ways that lead to increases in the supply of goods and services.
• It would prevent the central bank from propping up preferred assets with inflationary asset purchases.
• It would curb Fed-driven asset-price inflation, including for housing.
• By limiting artificial bubbles, it would reduce the risk of a financial crisis.
• It would curtail the Fed’s capacity to indirectly finance deficits.

Bottomline

Congress should restrict Fed purchases to Treasuries only, cap the balance-sheet size, and require a full unwinding of non-Treasury holdings. This would ensure that markets, not the central bank, allocate credit and help pressure Congress to enact needed spending reforms.

This memo is part of Affordability 101, Advancing American Freedom’s playbook of 101 policy solutions to make life more affordable.

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