In response to the recession of 2008, the US Federal Reserve Bank made several e

Question

In response to the recession of 2008, the US Federal Reserve Bank made several efforts to increase banks excess reserves, decrease interest rates for lending, and increase lending. These "extraordinary measures" have been somewhat controversial (at least among American politicians).

In your discussion post, identify some of the effects of these efforts and/or some of their potential future impacts. Also, provide citations if you are presenting data in your post.

In your response posts suggest why the effects identified in the posts to which you are responding are good or bad for the country or specific groups within the country.

Explanation / Answer

The Fed has taken aggressive action using unprecedented strategies in response to the financial crisis. The Federal Reserve sought to stabilize and improve conditions in financial markets to limit the damage to the broader economy.

Since September 2008, the quantity of reserves in the U.S. banking system has grown dramatically. While required reserves rose from $44 billion to $60 billion over this period, this change was dwarfed by the large and unprecedented rise in excess reserves.

Economists claim that the large increase in excess reserves implies that many of the policies introduced by the Federal Reserve in response to the financial crisis have been ineffective. Rather than promoting the flow of credit to firms and households, it is argued, that the money lent to banks and other intermediaries by the Federal Reserve since September 2008 is simply sitting idle in banks’ reserve accounts.

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