The Federal Reserve has employed the hammer with considerable force in the last nine months, lowering the federal funds rate by 3-1/4 percentage points, with wide-ranging implications for the economy. Of substantial import, we have filled the toolkit with other implements to provide liquidity and improve the provisioning of credit during the turmoil.
Real economic activity with higher investments, in both quantity as well as quality, would result in growth with macroeconomic stability and fewer financial uncertainties. The objectives of financial and macro-economic stability are, thus, mutually reinforcing. As Governor Reddy has put it, ‘financial stability needs to be particularly ensured when the financial system is undergoing structural changes’.