That, Skol, is where an understanding of basic economics comes in. The Fed does not trade in listed NYSE stock - you are correct. However, the Fed does buy bonds to top up the money supply. It cannot by law do this directly from the Treasury and has to buy the bonds via "open market transactions" i.e. bond auctions.
Now, a large purchaser of bonds drives the prices up and the yield down thus depressing interest rates. It is common knowledge that investments compete with one another. What this does is (ceteris paribus) make equity investments more attractive which now become undervalued relative to bonds- people thus pile into equities. Thus the Fed's open market transactions can and do pump up the equity market.
Of course life is not that simple. Most of the money created by the Fed's open market transactions in the last 10 years has moved back into the bond market where risk free profits have awaited the speculator. The know the Fed has to come to the market to feed and all they have to do is preempt them- buy and sell at a profit. Hence the real reason for deflation we see.
With that have a nice day- and be nice to your fellow HC travellers.
