Unconventional Monetary Policy Initiatives: 2008–2013
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As increasing problems in the U.S. financial system began adversely impacting economic activity in late 2007 and 2008, the Federal Reserve reacted in traditional fashion by gradually reducing its target level for the federal funds rate. During 2008, the Fed cut the rate seven times, by a total of 4 percentage points. By the end of 2008, the Fed had dropped the fed funds rate as low as it could go—to a range of 0–0.25 percent.
KeywordsFederal Reserve Bond Yield Federal Fund Rate Bank Reserve Federal Open Market Committee
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- 4.A comprehensive recent study estimates that QE1 reduced long-term Treasury bond yields by about 35 basis points, while QE2 reduced these yields by 45 basis points. This study also provides a useful perspective on the evolution of thinking—both by Federal Reserve officials and academic scholars—about the ability of the Federal Reserve to influence long-term interest rates and the technical mechanism through which this influence occurs. See Stefania D’Amico, William English, David Lopez-Salido, and Edward Nelson (2012), “The Federal Reserve’s Large-Scale Asset Purchase Programs: Rationale and Effects,” Economic Journal, vol. 122, no. 564, pp. 415–446.CrossRefGoogle Scholar