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Gauging the Ability of the FOMC to Respond to Future Recessions

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Gauging the Ability of the FOMC to Respond to Future Recessions

Federal Reserve Board,

5 min read
5 take-aways
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What's inside?

Historically low interest rates could cause problems during the next recession.

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Editorial Rating

8

Qualities

  • Analytical
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Recommendation

In the aftermath of the Great Recession, the Federal Reserve exercised extraordinarily accommodative monetary policy to spur economic growth. While the Fed has plans to lift the short-term federal funds rate in 2017, these increases will still leave the rate significantly lower than its historical average. This dynamic could portend difficulties for the US economy during the next recession. David Reifschneider, a deputy director at the Fed’s Board of Governors, argues that the federal funds rate isn’t the only tool the Fed has to deal with recessions. getAbstract recommends this scholarly but accessible report to executives, investors and policy makers.

Summary

Throughout the recovery from the 2008 global financial crisis, Federal Reserve officials kept monetary policy in a highly accommodative posture. The Federal Open Market Committee’s (FOMC) strategy of holding the federal funds rate near zero, along with maintaining a multitrillion-dollar balance sheet, has been one of the catalysts for the economy’s return to full employment. The FOMC is in the process of raising the federal funds rate in an effort to normalize it, yet its ultimate level, which economists predict will reach 3%, is significantly below its long-term average. In each of the past nine recessions, ...

About the Author

David Reifschneider is the deputy director of the division of research and statistics at the Board of Governors of the Federal Reserve System.

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