July 5, 2022

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From Recession to Inflation, How the US Fed Has Dealt With Crises

The US Federal Reserve has strongly signaled it will raise interest rates by half a percentage point this week

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The US Federal Reserve has strongly signaled it will raise interest rates by half a percentage point this week to rein in soaring inflation, and likely continue hiking throughout this year. News

The Fed has long played a decisive role when the world’s largest economy faces tough times. Here are some of its major actions since the 2008 global financial crisis:

  • The financial crisis and recovery –

November 2008: The Fed began injecting liquidity into financial markets following the collapse of Lehman Brothers investment bank. The central bank launched three such programs before ending asset purchases in June 2014.

December 2008: The central bank cut its lending rate to zero amid the crisis, where it remained until December 2015.

October 2017: The Fed began reducing the holdings on its balance sheet, which had ballooned from less than $900 billion before the crisis to $4.5 trillion.

  • Trade war slows growth –

December 2018 to August 2019: Interest rates peaked in the range of 2.25 percent to 2.5 percent.

Fall 2019: The Fed cut rates several times to the 1.5-1.75 percent range as the trade war launched by then-president Donald Trump slowed growth. The Republican leader had criticized the bank for its high rates.

Jerome Powell, Chairperson of the Federal Reserve
  • Support during the pandemic –

March 3, 2020: The Fed cut its lending rate by 50 basis points to between one and 1.25 percent.

March 16, 2020: As Covid-19 spread across the country and the economy shut down, the Fed slashed its lending rate by 100 basis points to zero and resumed its asset purchase policy, which eventually reached $120 billion per month in Treasury bonds and mortgage-backed securities.

  • Economy recovers, inflation arrives –

November 3, 2021: The Fed announced it will begin slowing the pace of its asset purchases, with a view towards ending them entirely by the following June, which would set the stage for rate hikes to fight inflation.

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December 15, 2021: Recognizing that inflation will not be “transitory,” as top officials had believed, the central bank accelerated the end of its asset purchases to March.

March 16, 2022: The central bank raised interest rates for the first time since 2018 to the 0.25-0.50 percent range.

April 6, 2022: The minutes from the Fed’s March policy meeting are released, showing that many participants see one or more 50-basis point rate hikes as necessary if inflation pressure continues.

April 29, 2022: The Fed’s preferred inflation gauge, the personal consumption expenditures price index, rises 6.6 percent year-on-year and 0.9 percent month-on-month in March, both faster paces than the month prior.

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Notes from APS Radio News

During the past few years, a number of the world’s central banks have engaged in massive programs of monetary expansion, even as jobs and businesses were lost by way of virus-related restrictions and quarantines.

For example, beginning in March of 2020, the US Federal Reserve engaged in a substantially greater program of monetary expansion by purchasing hundreds of billions of dollars of Treasury and corporate bonds.

Since the early part of March 2020 to date, the Federal Reserve has added over $4 trillion to its holdings.

In particular, whereas on or about February 24, 2020, the holdings of the Federal Reserve stood at $4.2 trillion, on or about January 17, 2022, the holdings of the Federal Reserve stood at about $8.9 trillion.

As well, the Federal Reserve has kept interest rates low.

Recently, Jerome Powell, the head of the Federal Reserve, said that he wasn’t concerned about inflation and that, for the none, the Federal Reserve would keep interest rates at low levels.

Another examples is that of the Bank of Japan.

According to Fred Economic Data, as of October 2021, the Bank of Japan’s holdings were about $6.4 trillion or about 725 trillion Yen.

In the early part of March 2020, the Bank of Japan’s holdings were $5.3 holdings. During the period mentioned, the Bank of Japan added over one trillion dollars to its holdings.

A number of corporations have been borrowing money inexpensively and have been purchasing their own shares of stocks, increasing share prices of stocks.

Still, there are concerns among investors.

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A number of them have expressed concerns about central banks’ eventually increasing interest rates, as, during the past year, inflation levels have been increasing.

The combination of low interest rates, expansive monetary policies, fiscal stimulus programs, which themselves have infused trillions into the US economy, and shortages of goods and services caused by virus-related restrictions and lockdowns has increased levels of inflation.

Investors also worry, for example, about announcements recently made by Toyota and VW; those companies have announced that because of shortages of particular types of material, they will be reducing levels of production.

Some weeks ago, the results of a survey of UK manufacturers were released.

That survey indicated that many businesses in the UK are concerned about shortages of supplies and will be making necessary adjustments.

In general, jobs and businesses have been lost by way of mandates, restrictions and quarantines, which, in their turn, were imposed by way of the virus narrative.

In the US, overall, the mortality rate of the virus is about .069%, according to Statista, an award-winning service.

The recovery rate is over 99% for most age groups.

What has followed in the wake of lockdowns and mandates has been the infusion of trillions of dollars into the US economy, the increasing succeess of online businesses like Amazon and other large online retailers, various bank and tech-related stocks, the shuttering of small to medium-sized businesses and the loss of millions of jobs.

Another result has been the increasing levels of inflation, especially those of food and fuel.

In official terms, for purposes of reporting, the US Labor Department uses what is called “core inflation”.

Core inflation excludes items like food and fuel, as those are deemed too volatile.

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