What can the Federal Reserve do to prevent a recession?
Answers:
Normal monetary policy would be to ensure there is enough money in the economy to maintain prosperity with only nominal inflation.
But most recessions are caused by what is termed "economic shocks" which could be a natural disaster, a commodity shortage, a stock market crash, or anything that will disrupt the supply/demand equilibrium. Unfortunately such shocks have a psychological effect on the economy as consumers and business hold back on spending until the uncertainty of the situation clears up.
Each economic shock is a little different and the remedy is usually a combination of fiscal and monetary actions.
From a monetary action, the first thing the Fed would do is signal a willingness to loosen the money supply, then follow it up with actions. This worked in the crash of 1987 when the market dropped 25% in one day. Folks anticipated this would have a ripple effect thus triggering a recession. The Fed stepped in and did nothing but guarentee liquidity; essentially telling the brokerages to hold off on calling in margins (which would be the next logical domino to fall). It worked and by year ends the market had fully recovered from the drop.
But let's look at another situation: rising oil prices. This will have a drag on the economy. But if the Fed loosens the money in response it will likely create inflation. What is needed is a political solution or changes in consumer behavior to adjust.
So the bottom line is sometimes the Fed can do something to prevent a recession and sometimes they can't.
the federal government and the reserve bank are sending us to recession, so that our money will stop going over seas.
They are the last people you should think will help,
in 1987, interest rates cracked 18%
Cost of living was at a record, everyone working 2 jobs, you name it!!
Well now, with all the new taxes, and the way interest rates are, the cost of living is higher.
That is a fact that was in the media about 2 months ago
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