By 1933, hosts of financial institutions had failed, real GDP had fallen by over 25 percent, unemployment was 25 percent and the nation had experienced annual double-digit rates of deflation. The Fed’s passiveness in 1929–33 was associated with an economic catastrophe. Let me summarize my review of Federal Reserve performance since the beginning of the Great Recession in December 2007.
My assessment is that, despite profound economic shocks, the Federal Reserve – led by Chairman Bernanke – has successfully met its price stability mandate through its lending programs and through innovative forms of monetary accommodation. These actions also helped keep the unemployment rate from rising even higher. As part of its accommodative policy, the FOMC has greatly expanded its balance sheet.