A crucial element motivating this policy was the “deflation scare” of 2002-03, when the Fed became highly concerned that monetary policy risked becoming ineffective in a low-inflation environment.
Although credit losses had been increasing consistently over the past two years, the pace of deterioration in the asset quality of banks moderated during the second half of 2009. Banking profitability dropped somewhat during the second half of 2009, but efficiency has remained fairly stable over this period.