Outright purchases or sales from the most liquid components of the permanent portfolio--for example, using short-term agency debt and high-grade commercial paper--could supplement short-term repurchase agreements if necessary. Conclusion The Federal Reserve has a range of options to consider if it has to adapt to a world without Treasury securities.
These options collectively provide an effective means for implementing the policy decisions of the FOMC. The key will be to design a strategy that respects the principles I have discussed and makes careful judgments about the inevitable tradeoffs among the principles.