Policy issues As I have just recounted, the Federal Reserve has been able to reduce the negative macroeconomic consequences of bouts of financial instability by providing liquidity to markets and institutions at times of need.
The provision of liquidity should thus be seen as a key tool for the Federal Reserve in its quest to achieve its statutory objectives of maximum sustainable employment and price stability. The episodes I reviewed here also suggest that the more quickly liquidity can be provided when financial instability occurs, the more effective it may be.