Question

What was the monetary policy and strategy used by the Federal Reserve in 2008, to overcome the financial crisis?

Answer 1

2008 Financial crisis began in 2007 with crises in subprime mortgage leading to a collapse of Investment bank Lehman brothers.

Federal Reserve took following measures to overcome from the situation

• Federal Reserve cut the federal fund rate near to zero
• Federal Reserve took extraordinary steps to provide liquidity and support credit market functioning, including the establishment of a number of emergency lending facilities and the creation or extension of currency swap agreements with 14 central banks around the world.
• FOMC has focused on the acquisition of longer-term securities--specifically, Treasury and agency securities, which are the principal types of securities that the Federal Reserve is permitted to buy under the Federal Reserve Act to have employment and price stability incresing the liquidity in market.
• Putting downward pressure on longer-term interest rates and easing overall financial conditions.  
• Federal Reserve provided the liquidity directly to borrowers and investors in key credit markets. The crisis-related Commercial Paper Funding Facility, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Money Market Investor Funding Facility, and the Term Asset-Backed Securities Loan Facility fall into this category.
• Federal Reserve also approved bilateral currency swap agreements with several foreign central banks. The swap arrangements assist these central banks in their provision of dollar liquidity to banks.