Federal Reserve: Unconventional Monetary Policy Options [February 19, 2013]   [open pdf - 599KB]

"The 'Great Recession' and the ensuing weak recovery have led the Federal Reserve (Fed) to reevaluate its monetary policy strategy. Since December 2008, overnight interest rates have been near zero; at this 'zero bound,' they cannot be lowered further to stimulate the economy. As a result, the Fed has taken unprecedented policy steps to try to fulfill its statutory mandate of maximum employment and price stability. Congress has oversight responsibilities for ensuring that the Fed's actions are consistent with its mandate. […] The sluggish rate of economic recovery suggests that monetary policy alone is not powerful enough to return the economy to full employment quickly after a severe downturn and financial crisis. It also raises questions about the optimal approach to monetary policy. When is the best time to return to withdraw unconventional policies, and in what order? Should unconventional policies only be used during serious downturns, or also in periods of sluggish growth? Do unconventional policies have unintended consequences, such as causing asset bubbles or market distortions? If so, are legislative changes needed to curb the Fed's use of QE [quantitative easing] , or would that undermine the Fed's policy discretion and interfere with conventional policymaking? Or should the Fed try other proposed unconventional policy tools to provide further stimulus when inflation is low and unemployment is high?"

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CRS Report for Congress, R42962
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