Just as the Federal Reserve used traditional concepts in unconventional ways to provide liquidity to the shadow banking system and stop the panic, once our main short-term interest rate lever was effectively at zero, we moved beyond traditional monetary policy to purchase longer-term assets and push down longer-term interest rates.
In November 2008, the Fed began purchasing large volumes of longer-term, U.S. government debt and agency mortgage-backed securities, eventually increasing the commitment to more than $ trillion before completing the purchases in March 2010. Those purchases put downward pressure on longer-term interest rates generally and helped normalize the spread between mortgage rates and long-term Treasury rates, which had widened during the financial crisis.