The language made reference to keeping the rate at exceptionally low levels “for some time” (Board of Governors 2008) and then “for an extended period” (Board of Governors 2009a). With the federal funds rate at its effective lower bound by December 2008, the FOMC began to use its policy statement to provide forward guidance for the federal funds rate. The sharp reduction in those periods reflected a marked downgrade in the economic outlook and the increased downside risks to both output and inflation (including the risk of deflation). Initially, the Fed employed “traditional” policy actions by reducing the federal funds rate from 5.25 percent in September 2007 to a range of 0-0.25 percent in December 2008, with much of the reduction occurring in January to March 2008 and in September to December 2008. The Federal Reserve’s response to the crisis evolved over time and took a number of nontraditional avenues. Traders await news of the Federal Reserve's response to the mortgage crisis at the New York Stock Exchange. These programs included the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009. The United States, like many other nations, enacted fiscal stimulus programs that used different combinations of government spending and tax cuts. The net worth of US households and nonprofit organizations fell from a peak of approximately $69 trillion in 2007 to a trough of $55 trillion in 2009.Īs the financial crisis and recession deepened, measures intended to revive economic growth were implemented on a global basis. The financial effects of the Great Recession were similarly outsized: Home prices fell approximately 30 percent, on average, from their mid-2006 peak to mid-2009, while the S&P 500 index fell 57 percent from its October 2007 peak to its trough in March 2009. The unemployment rate, which was 5 percent in December 2007, rose to 9.5 percent in June 2009, and peaked at 10 percent in October 2009. Real gross domestic product (GDP) fell 4.3 percent from its peak in 2007Q4 to its trough in 2009Q2, the largest decline in the postwar era (based on data as of October 2013). Beyond its duration, the Great Recession was notably severe in several respects. The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II.
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