The second part of the Federal Reserve’s response to the crisis and recession, besides the provision of liquidity to the financial system, involves both standard and less conventional forms of monetary policy. After reducing short-term interest rates nearly to zero, the Federal Open Market Committee (FOMC) provided additional monetary policy stimulus through largescale purchases of Treasury securities, agency mortgage-backed securities (MBS), and agency debt.
Here, too, the protracted nature of the political debate creates uncertainty, which undermines economic growth and exacerbates the crisis. While some have argued that preventing Greek default would keep the crisis from spreading, that argument has proven false. The interaction of monetary policy and fiscal policy The fiscal challenges alone are daunting.