Dean Baker has a few ideas for how the Federal Reserve could stimulate the economy. One proposal is for the Fed to set an even lower target for interest rates and buy up as many Treasury bonds and mortgage-backed securities as possible to make that happen. By Baker’s calculations, the effects would be modest — 200,000 to 400,000 extra jobs. On the other hand, doing so could also have the side effect of cutting the federal budget deficit:
There is one other important aspect to the Fed's actions that is almost never mentioned. The interest that the Fed earns on its assets is refunded to the Treasury. Last year, the Fed refunded almost $80bn in interest to the Treasury from the bonds and mortgage-backed securities it held.
If the Fed buys more assets, it will have more interest earnings to refund to the Treasury. This is not the main reason that the Fed should act, but given the obsession in Washington over debt and deficits, larger interest earnings from the Fed have to be just about the most painless way possible to lower the deficit.