Federal Reserve Policy in the Great Recession

Abstract

Overresponse to short-run events and neglect of longer-term consequences of its actions is one of the main errors that the Federal Reserve makes repeatedly. The current recession offers many examples of actions that some characterize as bold and innovative. I regard many of these actions as inappropriate for an allegedly independent central bank because they involve credit allocation, fill the Fed’s portfolio with an unprecedented volume of long-term assets, evade or neglect the dual mandate, distort the credit markets, and initiate other actions that are not the responsibility of a central bank. We can improve outcomes by ending unlimited discretion and insisting on great discipline and accountability for Federal Reserve actions.

Keywords: global financial crisis, U.S. monetary policy, U.S. financial policy, keynesian economics, American central bank, great recession, economic policy

JEL Classification: E50, E52, E58, G01, H12