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Thursday, January 28, 2010

CRS Issue Statement on the Federal Reserve, Monetary Policy, and Inflation

Marc Labonte, Coordinator
Specialist in Macroeconomic Policy

Craig K. Elwell
Specialist in Macroeconomic Policy

Brian W. Cashell
Specialist in Macroeconomic Policy

Jennifer Teefy
Information Research Specialist

Edward V. Murphy
Specialist in Financial Economics

Darryl E. Getter
Specialist in Financial Economics

M. Maureen Murphy
Legislative Attorney

The financial crisis has renewed interest in the role of the Federal Reserve (Fed). Besides its traditional role of setting interest rates, currently at low levels intended to stimulate the economy in the recession, the Fed has taken unprecedented policy actions in its lender of last resort role. It has expanded its direct lending programs to non-member banks through an array of new lending facilities. It has purchased financial securities and intervened to support certain financial instruments. It has provided financial assistance to keep "too big to fail" financial institutions solvent. It has financed these operations by more than doubling its balance sheet. In 2009, the Fed began to wind down many of its emergency programs and replaced those loans on its balance sheet with debt and mortgage-backed securities issued by the housing government-sponsored enterprises (GSEs). As Congress considers proposals to reform financial regulation, it is debating whether the Fed's powers should be expanded or reduced.

Date of Report: January 12, 2010
Number of Pages: 3
Order Number: IS40312
Price: $7.95

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