Working Paper

The Federal Reserve’s response to the financial crisis: what it did and what it should have done

Abstract: This paper analyzes the Federal Reserve?s major policy actions in response to the financial crisis. The analysis is divided into the pre-Lehman and post-Lehman monetary policies. Specifically, I describe the pre- and post-Lehman monetary policy actions that I believe were appropriate and those that were not. I then describe the monetary policy actions the Fed should have taken and why those actions would have fostered better financial market and economic outcomes. Had these actions been taken, the Fed?s balance sheet would have returned to normal and the FOMC?s target for the federal funds rate would be a level consistent with a positive real rate and an inflation target of 2 percent.

Keywords: Federal Reserve banks; Monetary policy; Financial crises;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2012

Number: 2012-050