However, with the very accommodative stance of monetary policy, the inflation situation is one that bears careful watching in order to ensure that inflation pressures remain contained over the medium run. On monetary policy, the Federal Reserve has taken bold and significant steps to improve the transparency of its policy actions and to create better public understanding of the rationale behind the FOMC’s decisions.
And when liquidity becomes scarce – as was the case during the Panic of 2008 – the Fed finds itself charged with more novel and significant challenges in providing liquidity to institutions and markets. 5 History teaches us that fiscal and monetary policies tend to blur in these times of crisis. Capital and liquidity issues become difficult to disentangle at troubled institutions.