Tags: Money | Federal Reserve | policy moves

7 Most Surprising Fed Policy Moves

By    |   Sunday, 14 June 2015 03:36 PM

The Federal Reserve monitors the financial system by regulating U.S. monetary policies. It attempts to balance the effects of economic changes by maintaining the stability of banks while protecting consumers.

The actions of the Fed stem from downturns and upticks in the economy or lead to economic effects for better or worse. Here are seven surprising policy moves by the Fed.

1. 1987 Stock Market Crash
Following the stock market crash on October 19, 1987, the Fed took on the role of a source of liquidity to stave off panic as it pumped reserves into the banking system, according to the Roosevelt Institute. Newly appointed Fed Chairman Alan Greenspan initiated the buying of large amounts of government securities to help banks and investors maintain stability during the crisis.

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2. Asian Financial Crisis
The Fed moved to balance the effects of the Asian financial crisis in the late 1990s. After the economic collapse throughout Asia became apparent, the Federal Reserve lowered interest rates. As the Asian economy began to rebound in 1999, the Greenspan-led Fed raised interest rates to maintain the health of the U.S. economy.

3. Subprime Mortgage Loans
Greenspan and the Fed were criticized for not making moves to curtail subprime mortgage loans in the early 2000s. In 2011, Financial Crisis Inquiry Commission found that the easy access to loans for many new homeowners contributed to the housing bubble and bust that caused an economic meltdown of 2008, according to Encyclopedia Britannica.

4. Financial Crisis of 2007
The Fed began lowering interest rates dramatically to boost a slowing economy under Chairman Ben Bernanke. Interest rates dropped from 5.25 percent to 0 percent from 2007 to 2008 and remained at near-zero levels for several years.

5. Term Auction Facility
As bad debt became a problem for banks, the Fed created the Term Auction Facility, which loaned billions of dollars to banks to help with collateral. When the housing market collapsed from the sub-prime mortgage loans, the Fed provided about $180 billion in credit for banks and $540 billion to money market funds, according to About.com.

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6. Quantitative Easing
Bernanke introduced the process of quantitative easing in an attempt to keep inflation in check and the economy afloat following the 2008 economic crisis. The Fed purchased billions of dollars’ worth of long-term Treasury bonds and mortgage-backed securities from banks, according to Money Morning. The hope was to encourage borrowing and spending to stimulate the economy.

7. Continued Struggles
Moves to raise interest rates have been hinted at by the Fed, but economic growth remained uncertain as Janet Yellen became the first female chair of the Fed in 2014, according to Business Insider. Consumer spending was weak and wage increases were stagnant. Job creation became questionable as millions of Americans left the workforce.

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The Federal Reserve monitors the financial system by regulating U.S. monetary policies. It attempts to balance the effects of economic changes by maintaining the stability of banks while protecting consumers.
Federal Reserve, policy moves
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2015-36-14
Sunday, 14 June 2015 03:36 PM
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