In response to problems in financial markets and a slowing economy, the FOMC began lowering its target for the federal funds rate from 5.25 percent in September 2007. Over the next year, the FOMC cut its federal funds rate target in a series of steps. Economist Price Fishback of the University of Arizona observed: “The Fed has been pouring more money into the banking system by cutting the target federal funds rate to 0-0.25% in December 2008.”
A. What is the relationship between the federal funds rate falling and the money supply increasing?
B. How does lowering the target for the federal funds rate “pour money” into the banking system?
C. Looking online, does the unemployment rate for the US from 2009-2016, The US GDP growth from 2009-2016, The US inflation rate from 2009-2016. Has the Fed’s policy worked? Why or why not?
D. What should the Fed do today, and why?