Fiscal and monetary policies introduced in the USA during the 2008-2009 economic crisis.
Several fiscal and monetary policies were introduced in the USA during the 2008-2009 economic crisis.
- The Federal Reserve in the United States introduced fiscal policies using a combination of tax cuts and government spending. The various programs used included the American recovery and reinvestment act of 2009 and the economic stimulus act of 2008.
- At first, the Fed reduced the federal fund rates to a range of 0-0.25 from 5.25%. Most of the reduction happened between January and March of 2008. Further reductions were made from September to December in 2008 to stimulate the economy. The changes in the fund rates posed a risk of deflation in the country during that period because it degraded the country’s economic outlook.
- FOMC developed a policy statement meant to keep the rate low. The guidance was meant to provide monetary stimulus by lowering the term structure of the interest rates, increasing expectations for inflation, and reducing the real interest rates. Also, the guidance provided showed prospects of having low rates of resource utilization, expectations of having a stable rate of inflation, and having subdued inflation trends. The low levels of funding extended up to mid-2013.
- The federal reserves also introduced several credit easing programs that were aimed at facilitating higher credit flows. The programs were also meant to reduce the cost of credit.
- Another unconventional policy introduced by the Federal Reserve was introducing large-scale asset purchase (LSAP) programs. Asset purchase programs were introduced to assist in pushing down the long term private and public borrowing rates. The choice of asset purchases by the US government was meant to reduce cost and increase credit services availability to facilitate home purchases. The various purchases were significant because they supported the housing market, and they improved financial conditions in the country.