Unlike many uncertain situations that have confronted monetary policy, there was little question that the appropriate central bank action was to ease policy significantly. We knew we would soon have to sop up the excess liquidity that we added to the system, but the timing and, I believe, the magnitude of our actions were among our easier decisions.
Our concerns at that time reflected questions about how the financial markets and the economy would respond to the shock of a decline of more than one-fifth in stock prices in one day, and whether monetary policy alone could stabilize the system.