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The Complete Idiot's Guide to Economics, 2nd Edition by Tom Gorman

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The Fed’s Response to the 2008 Financial Crisis

As the financial markets were threatened in 2008 by the failure of Bear Stearns and market turmoil, the Fed (along with the U.S. Treasury) supported several major banking institutions. As the regulator of the banking system, the Fed took a number of other steps to address the crisis, the most significant being the following.

Lowering the Fed Funds Rate

Between June 2006—when the fed funds rate peaked at 5.25 percent—and December 2008, the Fed lowered the rate in 10 increments to virtually 0 (technically, between 0 and 0.25 percent). This was a first in Fed history, and it shows how desperate the central bank was to inject liquidity into the financial system and encourage banks to lend.

Providing ...

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