Federal Funds Rate 1954-2016 *The Federal Funds Rate is the interest rate at which banks loan each other money overnight.
How did the Fed respond to the Great Recession?
After the Great Recession, the Federal Reserve utilized monetary policy (short-term buybacks) that dropped the interbank interest rate to 0. They deemed that insufficient, and instituted further quantitative easing to impact longer-term interest rates.
The Federal Reserve's actions gave our economy a tremendous amount of free money (a term I like to use for money that shouldn't be in an economy). The easy access to capital caused artificial growth nationwide. Economic growth is a necessity if a country is to be successful, however putting short term market fears ahead of long term economic health is a recipe for disaster.
In the last year the S&P 500 grew by 0.14%.
Interest rates are still at 0% on July 1, 2016.
If a recession does occur, what will the Fed do to stimulate the economy?
With short term interest rates already at 0%, the Fed would struggle to revitalize the US through changes to monetary policy.