We applied what we understood to be the lessons from Japan, though with hindsight, perhaps not in every respect as completely as we could have. In particular, Japan’s experience reinforced the lessons of the Great Depression here in the U.S. and made us sensitive to the disinflationary force of an asset price bust and financial  4  However, research suggests that the purchases did reinforce the forward commitment. See, for example, “Policy commitment and expectation formation: Japan’s experience under zero interest rates” Kunio Okina and Shigenori Shiratsuka North American Journal of Economics and Finance, Vol 15, No 1, pp 75–100. 5  See, for example, “Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007”, Kazuo Ueda, Journal of Economic Perspectives, Vol 26, No 3, Summer 2012, pp 177–202. 6  Some commentators prefer the term “North Atlantic financial crisis” as the failure and near-failure of financial institutions was concentrated in the U.S. and Europe. However, the crisis was global in the sense that financial markets transmitted the shock throughout the world and this resulted in a severe global economic downturn. BIS central bankers’ speeches  3  crisis. We recognized that we had to be very aggressive to prevent deflation and deflation expectations from becoming well entrenched. The Federal Reserve reduced short-term interest rates to nearly zero by late 2008 – a little over a year and a half after the initial shock hit in August 2007.
The Supervisory Capital Assessment Program (SCAP) in early 2009 identified and addressed the potential capital shortfalls of the major U.S. bank holding companies in a stressed scenario. The SCAP forced the banks to recapitalize either through the use of private funds or the injection of government convertible preferred equity from the TARP program. However, our policy approach was far from perfect. Comparing actual growth to the growth projections by FOMC participants in the Summary of Economic Projections shows that we were consistently too optimistic about growth over the 2009–2012 period. As a result, with the benefit of hindsight, we did not provide enough stimulus. Perhaps, if we had paid more attention to the persistent divergence between growth forecasts and outturns in Japan in the 1990s, we might have been more skeptical about the prospects for a strong economic recovery, even with a more aggressive monetary policy regime. Also, we could have done better in communicating our intentions and goals. We put too much emphasis, too early, on the exit. At an earlier stage, we should have put greater emphasis on our commitment to use all our tools to the fullest extent possible for as long as needed to achieve our dual mandate objectives. Our policies also had a “start-stop” aspect to them that may have undercut their effectiveness. For example, until September 2012, our large-scale asset programs generally specified the total size of the program, with a purchase rate and an expected ending date.