America's central bank, the Federal Reserve, has several methods by which to fight recession. Among other measures, the Fed can raise or lower interest rates as economic circumstances require; it can sell and buy U.S. government debt - Treasury bills and notes - and it can extend cash and or credit to various financial institutions. In its ongoing effort to fight the recession and stimulate the economy, the Fed has used all of those measures.

SEE: The Federal Reserve: Introduction

Here's a closer look at what the Fed has done:

Help for Unemployment
In the third week of June, the Fed announced that it would continue its "Operation Twist" program to reduce long-term interest rates until year's end. The program is designed to make borrowing cheaper for businesses and consumers when the Fed sells short-term U.S. debt and takes the cash to buy long-term U.S. debt. Fed Chairman, Ben Bernanke, said that additional Fed action may be required if unemployment doesn't fall below 8.2%. The labor market showed signs of modest improvement in the early months of 2012, but had slowed through the spring and early summer.

Money for Mortgages
Throughout the years of America's recent recession and subsequent slow recovery, the Fed, under chairman Bernanke, has been actively attempting to restart the faltering economy. In recent years, the Fed announced it was to buy a significant amount of mortgages.The money would be used to buy mortgage debt and government bonds, a move designed to stimulate spending, reduce long-term interest rates and fire up the stock market. This Fed action was known as quantitative easing, or QE for short.

Lending for Banks
In 2008 and 2009, as the nation's economic problems became severe, the Fed provided lines of credit to financial and lending institutions. This cash infusion provided funds for consumer loans and consequent consumer buying - the engine that drives the economy. A follow-up effort to pull down long-term interest rates was initiated in 2010, with an additional $267 billion earmarked by the Fed for bond buying.

Besides these actions by the Fed, America's central bank loaned money to J.P. Morgan Chase to help the banking giant takeover the failing investment bank, Bear Stearns. The Fed also established a line of credit and financing for the government's acquisition of American International Group (AIG), one of the largest global insurance firms. By mid-June this year, these loans had been totally repaid, according to the Federal Reserve Bank of New York.

SEE: When The Federal Reserve Intervenes (And Why)

Beginning in 2008, the Fed has also provided cash to some central banks of foreign countries so that loans could be made to local banks with liquidity problems and for lending purposes to businesses and consumers. The loans were made by the Fed to protect U.S. markets that relied, in part, on these foreign economies.

The Bottom Line
The results of all this effort by the Fed have only been partially successful. The economy enjoyed a somewhat faster growth rate in early 2012, but has since slowed. The extended "Operation Twist" program, with its projected sales of $267 billion of short-term debt and the purchase of an equal amount of long-term securities, is hoped to ignite the economy and create more jobs for millions of currently unemployed Americans.

SEE: The Treasury And The Federal Reserve

Prospects for a quick recovery seem dim, however. Fed Chairman Bernanke cited the European debt crisis as a contributing factor to the struggling U.S. economy. Fed officials forecast an unemployment rate of at least 7.5% for the next 18 months or so. If "Operation Twist" has limited results, Bernanke stated at a Federal Open Market meeting in June that he is prepared to take additional steps.

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Investing Basics

    Why Interest Rates Affect Everyone

    Learn why interest rates are one of the most important economic variables and how every individual and business is affected by rate changes.
  3. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  4. Investing

    The Hunger Games Economy: 5 Unanswered Questions About Panem

    The Hunger Games's fictitious nation of Panem has technology, black markets, and government. But, we know precious little about Panem's economy and the reasons for its rampant inequality.
  5. Economics

    Understanding Donald Trump's Stance on China

    Find out why China bothers Donald Trump so much, and why the 2016 Republican presidential candidate argues for a return to protectionist trade policies.
  6. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  7. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  8. Savings

    The Worst Financial Problems Ultra-High-Net-Worth-Individuals (UHNWIs) Face

    Understand how the problems of ultra-high-net-worth individuals (UHNWIs) are different from ordinary problems, and identify the unique financial challenges they face.
  9. Markets

    What Slow Global Growth Means for Portfolios

    While U.S. growth remains relatively resilient, global growth continues to slip.
  10. Economics

    Will a Hike in Interest Rates Affect the US Dollar?

    Learn about how rising U.S. interest rates affect the U.S. dollar and where the dollar could be heading once the rising rate cycle begins again.
  1. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  4. Marginal propensity to Consume (MPC) Vs. Save (MPS)

    Historically, because people in the United States have shown a higher propensity to consume, this is likely the more important ... Read Full Answer >>
  5. What happens if interest rates increase too quickly?

    When interest rates increase too quickly, it can cause a chain reaction that affects the domestic economy as well as the ... Read Full Answer >>
  6. When was the last time the Federal Reserve hiked interest rates?

    The last time the U.S. Federal Reserve increased the federal funds rate was in June 2006, when the rate was increased from ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center