Monetary Policy Implemented in the Thesis

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In 2006, the Federal Open Market Committee announced in a press release that it was raising its target for the federal funds rate to 4-3/4%, specifically warning of the dire threat posed by inflation. However, this only occurred after many years of historically low interest rates, designed to stimulate the American economy after the recession of 2001. The Fed's low rates, critics contend, were one of the primary reasons for the housing bubble and bust. With the benefit of hindsight, they state that the Fed should have never have allowed interest rates to sink so low, and should have raised rates to more normative levels far sooner than it did. This would have curtailed the American consumer's addiction to credit and stifled the spiraling housing bubble.

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But the Fed alone is not to blame: the Securities and Exchange Commission (SCC) and regulators did not exercise appropriate watchfulness over the complicated financial instruments that also enabled the banking crisis to become a global event. Still, given the Fed's critical role in governing interest rates, it must bear a great deal of responsibility for the financial debacle from which the nation is still attempting to extricate itself......

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