So the Fed affects stock prices to make people “feel” they’re better off?
“Our tools involve—I mean, the tools we have involve affecting financial asset prices, and that’s—those are the tools of monetary policy.”
“Stock prices—many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend. One of the main concerns that firms have is there is not enough demand, there’s not enough people coming and demanding their products. And if people feel that their financial situation is better because their 401(k) looks better or for whatever reason, their house is worth more, they are more willing to go out and spend, and that’s going to provide the demand that firms need in order to be willing to hire and to invest.”
-Ben Bernanke, September 13, 2012