In an environment of well-anchored inflation expectations, the FOMC had the scope to respond aggressively to the strains in financial markets that emerged late last summer and to the worsening economic outlook. Indeed, since September, the FOMC has cut the federal funds rate five times, for a total of 225 basis points.
In addition, the Federal Reserve has taken a number of other steps to ease strains in short-term funding markets. These policy actions, along with the recently enacted fiscal stimulus package, should support economic activity and should improve the odds of avoiding more adverse outcomes.