Role of Federal Reserve System in Overcoming the Financial Crisis of Essay

Role of Federal Reserve System in Overcoming the Financial Crisis of 2008 - Essay Example It also affected the trade position in services. That time fed increased the interest rate to overcome the persistent level of inflation. So that time economy was going slow down due to FED’s tightening monetary policy. Role of FED in the Last 4 Years In the last four years FED play a vital role in the economic indicators of USA economy. In 2009 first time in the history FED maintain the discount rate on .25 that was in 2008 so there arise no change. As well as it remained same in last 4 years from 2009 to 2012 in US. FED uses this strategy to control the supply of money that influences the inflation and interest rate on the economy. In 2009 the credit card act is announced FED that means a company cannot change the rate on the existing balance of a person.FED also improving the reserve requirement every year that is helpful to control the inflation but it is also slowed the growth of economy. The reserve requirement was about 67 billion in 2009, 74 billion in 2010, and 100 bi llion in 2011 that is reached on 104.45 billion in 2012 according to Federal Reserve of US. Due to highest and severe financial issue of US debt that aroused in May 2011 and increased than 14$ trillions, FED decided to depreciate the US dollar in the economy. This financial problem came due to high government expenditures of US and less tax revenue. Money supply in US (M0) that includes coins and notes as well as asset those are easily convertible in money also showed upward trend from 2009 to 2012. Like it increased from 1700000 USD millions to 2643310 USD million in 2012. Bank lending rate that is set by FED is constant from 2009 to 2012 that is 3.25%. FED’s Tool in Gaining Macroeconomic Objectives Open Market Operations Fed...This paper offers a comprehensive review of Federal Reserve System policies, both traditional and non-traditional, which were maintained in an attempt to successfully overcome the ramifications of the world financial crisis. The effectiveness of FED a ctions is proved by the dynamics of basic macroeconomic indicators during the period from 2008 to 2012. FED maintains millions of accounts as well as performing a role in settling and clearing different financial institution payments through intermediaries. FED play a vital role in providing the facility of financial services to depository institutions like distributing currency and coins, transfer funds and securities through clearing house system and collecting checks. FED playing different functions for boosting the USA economy, those are FED working as a central bank for U.S., address about the financial severe problems, regulates and instruct the other banking systems, controls monetary policy through manage the money supply in the economy, provides the financial facilities to other financial institutions, US government to strengthen the economy of US, provides the major facility of exchange of payments in the different regions. It also play a role in maximizing employment, stability of price level as well as long term moderate interest rate in the economy. Open market operations in which selling and purchasing of government securities occurs by the FED. These operations are in the control on the FOMC. During the years of the crisis, it was not possible to provide additional monetary stimulus only by utilizing traditional tools of monetary policy. To avoid this crisis, the Fed decided to utilize nontraditional policies in order to provide extra monetary policy stimulus.