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Federal Reserve and the Financial Crisis

Visit the home page of the Federal Reserve Systems of the central bank of US at www.federalreserve.gov and read the key objectives of the Fed to stabilize the macroeconomic crises of the US economy. Based on the information on monetary policy objectives and tools, answer the following question A.

A) What are those key objectives and what are the key tools does the Fed use to achieve those objectives?

Then you read the speech given by the Fed's Vice-Chairman Kohn in this url link http://federalreserve.gov/newsevents/speech/kohn20090403a.htm of the Fed's website to answer the following question B.

B) Read the last Q&A of Vice-Chairman Kohn's speech as quoted below and critically describe whether you agree or disagree with Vice-Chairman Kohn's remarks below. You need only a paragraph in clarifying the logics to your answers.

Will We Need to Do More?
 My final issue is the hardest: Are the policies we have put in place sufficient to restart the flow of credit, or will the government need to do more? The answer, of course, is that we don't know--we have no reliable precedents for the current situation. Policymakers are operating in a highly uncertain environment--one marked by a huge amount of unquantifiable risks.

Most people, including policymakers, did not anticipate the depth, breadth, and severity of the financial meltdown and economic downturn. We have had to remain very flexible and open to policy actions that had no precedent. And all of us--the Federal Reserve, the Administration, and the Congress--must continue in this posture. We must keep our ultimate objectives for the economy firmly in mind--sustained recovery to high levels of output and employment with price stability. We will continue to adapt our policies as necessary to accomplish these objectives.

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Solution Preview

The goals of the Fed are to keep prices stable, maximize the number of people employed, and to moderate long term interest rates. Its primary tool is open market operations, where Treasury bills are bought and sold. It also can set a target Federal funds rate to help increase or decrease interest rates, as well as change reserve requirements for member banks. In addition to its technical responsibilities, the Fed also tries to provide public services it deems helpful for ...

Solution Summary

Federal Reserve policy and analysis of the Chairman's speech