Evolution Of The Federal Reserve Bank’s Monetary Policy (Term Paper Sample)

Evolution of the Federal Reserve Bank’s Monetary Policy during and after the Great Recession
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ABSTRACT
This paper focuses on the evolution of the Federal Reserve Bank’s monetary policy during and after the Great Recession as explored via three published articles and essays found online. These articles give a description of instruments used when crisis hit.
The main focus in this paper will be on the evolution of the Federal Reserve Bank’s monetary policy during and after the Great Recession of the year 2007.
This paper will also discuss the concept of “Too Big to fail”.
Evolution of the Federal Reserve Bank’s monetary policy during and after the Great Recession.
A Federal Reserve Bank is a regional bank of the Federal system, the Central banking system of the United States and they are 12 in total. The main responsibility of the Federal Reserve is to oversee the banking as well as financial systems of its banks. The monetary policy is referred to as the actions a bank like the Federal Reserve undertakes to influence the cost and availability of money and credit so as to help promote national economic goals. The Great Recession is described as a prolonged and severe economic downturn and economists trace the most recent one to the downfall of the United States hosing market in the year 2007. This lasted from
December 2007 to June 2009 leading to a drop in asset values due to a fall in stock prices, slow earning thus repelling investors. A recession usually has a domino effect whereby the level of unemployment is increased and the consumer spending is decreased. The “too big to fail” concept explains that specific businesses [biggest banks] such as the Federal Reserve are so vital to the to the United States economy that it would be catastrophic if they went bankrupt.
Discussion
The Great Recession was caused by several factors with the major causes being international trade imbalances and a lax in lending standards leading to high levels of household debt and a real estate bubble in the US. Once this started, various responses like the monetary policy by the Federal Reserve were implemented with an aim to achieve success. The measures taken were designed to help indebted consumers to refinance their mortgage debt.
Before the financial crisis of 2007, there was a widespread emergence financial innovations that were insufficiently regulated leading to creation of asserts that brought risks to financial stability. Emerging economies such as Asia had started to build up foreign exchange reserves that were putting a hedge against the flow international capitals. In a year, they would consume less than they would produce, developed economies would consume more than they produced while the latter countries would live beyond their means.
During the financial crisis of 2007, the monetary policy began to fine tune the money market by introducing measures such as conducting supplementary refinancing operations with maturities of 3 to 6 months hence lengthening the average maturity of liquidity proving to be suitable and strong to address the challenges. ...