Question

The financial crisis of 2007-09 resulted in immediate action by the Fed to cut interest rates. Two or three months later some economic commentators complained that the Federal Reserve’s policies had obviously failed to turn the economy around because things were still getting worse. Was this a fair complaint against the Fed? Why or why not?

Answer 1

No, this is not a fair complaint against the fed, as fed tried to control the financial crisis by lowering the interest rates. However the situation was not good enough and things were still getting worse but complaining against someone who tried to control the situation is not appropriate.

The Fed can only do what is in its hands , and the fed is allowed only to increase or decrease the interest rates as per the scenario,it can adjust the inflation and deflation by controlling the money supply,   here the people were facing financial crisis so the fed lowered the interest rates so that more people can take loans and they have to pay less and by taking loan they can restart their business and overcome the fear of financial crisis but little did they knew that people in this case can never take risk of lending as the non repayment may make them bankrupt and bring them to roads as well.

So in this way the fed failed with its policy to overcome the financial crisis and the situation even got worse.