In contrast, over the past 12 months, the various measures of underlying inflation all suggest that it is now running at around 3 per cent – a marked reduction from rates two years ago. Graph 9  This decline reflects two broad developments – the earlier slowdown in demand growth and the appreciation of the exchange rate.
The Federal Reserve took this action because it judged that, in light of the prevailing market conditions and the size and composition of AIG's obligations, a disorderly failure of AIG would have severely threatened global financial stability and, consequently, the performance of the U.S. economy.