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    Fed and reduction in interest rates

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    Since January of 2001 the Fed has reduced its Fed funds rate target from 6.5% to 1%. Nonetheless, the number of people at work is less than (and the unemployment rate higher than) when the Fed embarked on this expansionary monetary policy. Why hasn't the Fed's policy been more effective over the last 2.5 years in restoring strong growth and full employment to the economy? Explain in a few sentences.

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    The tools of interest rate adjustment and bank capital requirements that the Fed has are actually rather limited in effectiveness. There are many factors at work that are beyond the Fed's control. For example, growth depends on optimism from the decision ...

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    This solution discusses Fed and reduction in interest rates.