The Federal Reserve was effective/successful in its management of the 'Great Recession' - Essay Example

After completing the research, it has been found out that the Federal policies are skewed in favor of the borrowers, but offers not much help to the lenders, which might cause more problems in the future. The monetary policy that is followed by it can also cause macroeconomic instability and thus, be detrimental in the long run, even though it turns out to be successful in the short-run. In addition, the lack of austere policies which in the first place had led to this recession has also been analyzed.

This paper tries to establish the criticism against the policies adopted and the logic behind the criticisms are provided. Name of the Student Name of the Professor Name of the Course Date Federal Reserve Policy Evaluation in the Great Recession Introduction The world did not have the slightest idea, when it had recovered from the Great Depression of 1930’s, that it would be engulfed by its somewhat analogous cousin, in the beginning of the new century. The Great Recession which had begun in December 2007 had lasted for two painful years and ended officially in the summer of June 2009.

The systematic collapse of financial system during this time had put a doubt in the mind of the commons regarding the policies and strategies of the financial authorities in their role to rein the crisis. The main cause, that was pointed out in retrospect, for this crisis, was the collapse of trillion dollar housing bubble (Canterbery 4-5). Though the countries are still licking their wounds in the aftermath, the austerity measures that had been assumed by the government had greatly reduced the social expenditures, which are causing a great deal of visible problems for the commoners (“The Great Recession”).

The pertinent questions which comes to mind is about the policies followed by the FED that had led to the crisis in the first place and the adopted policies that can prevent such disasters in the future. This main aim of this paper is to establish the inefficiency of the Federal Reserve in controlling the situation efficiently and to critically evaluate the policies it had adopted during this time period. The unique characteristics during this recession are studied in details and the policies undertaken to combat the negative effects are also critically evaluated in the paper.

Policies taken by the Federal Reserve The Great Recession of 2007 had prompted the Federal Reserve to take up certain unconventional policies. This section explores in details the different policies taken up by the FED to overcome the crisis that it faces. The advent of the Great Recession had casted huge doubts on the Chicago School of Economics which stated that the auto corrective market rectifies imperfections and drives the economy to attain the optimal equilibrium. However, when the Great Recession hit the economy, the knowledge of this classical economics came under attack.

The picture that emerged had made policy makers rethink their stance on the market. The policymakers realized that government intervention was strictly required in order to bring the economy out of deflation. Monetary Policy: The revised monetary policy of the Federal Reserve consisted of increasing the money supply into economy to boost the markets. It also changed the “Federal fund rate”. The Federal fund rate is the rate at which the banks lend money to the other banks for very short time.

The main objective behind this policy was that changes in the Federal fund ra