Report on Financial crisis

        Financial crisis took place in 2008-09; Fed took unbelievable steps and reduced interest rate from 5% to 0%. It has obtained $85 billion of securities for several months. The GDP was affected by 25%. It turns out reducing interest rates turned out to be highly successful for it and this strategy worked. Stock market got better, bank was profited and restoration of capitals was done. These actions resulted in highly effective era for debt and equity, unemployment was reduced, deflation could not reappear and inflation was right on target.

        But this is not what Fed was settling for, direction has to change; policy was going to change. Interest rate was upward; now that the unemployment is reduced it can result in high wages, and increased wages will cause increased inflation and if inflation is increased then high monetary policies. Another issue is what to do with all the securities which Fed gained in financial crisis. Now they want to bring the interest rate to where it was before the financial crisis era. The negative effects can be observed in result of $3 trillion of supply can affect demand. 

Content of  Financial crisis

        I believe the Fed’s actions were successful because a spontaneous action was needed to pull it out of financial crisis and establish a more effective and healthy financial condition. Somehow the strategy worked and it was successful but such strategies are successful only for long run. Decreased interest rate encourages the investment in times such as slow economy rate. The actions were warranted and successful but it does not assure that such strategy will work every time because rapid ups and downs have ability to affect the reputation of the company.

        The Fed policy to hike the interest rate is a good idea because a company cannot work like it should after reducing interest rate. Reduction of interest rate was demand of the time and it was a short time action, and the same policy might not be successful if the financial crisis re-occurs, rapid changes such as increase or decrease rate reduced the investment and affects the reputation of the company. The risk of increasing interest rate is a good sign it shows that the economy is growing but this can affect the borrowing as it gets expensive. The hike of interest rate can make central bank to do aggressive hiking which has consequences for the consumer. Rising wages are desirable, its requirement of time and the economic condition.

        Fed balance sheet is shrinking over time; it has shrunken around $315 billion and is expected to further get affected to $437 billion in 2019 as per by assets it still holds mature. The other side of these assets is liabilities. It also involves movement of currency and commercial bank reserves to be held on deposit at Fed. Fed should keep its balance sheet gradual and increase or decrease the interest rate over time rather than taking any risk or suddenly and sharply increase or decrease it. Keeping it gradual over time is a safer approach. 

    Fed should guard against inflation and be very careful about the risk to come in future years economically and if not it increases the risk of downsizing in order to cop up with increasing inflation and expenses and lower income.

Conclusion of Financial crisis

        No matter what economic condition is, fed has to be very strategic in this competitive business. It took a chance and was successful but it is not necessary such rapid change will be good in any other crisis. Therefore, fed has to be strategic and increase or decrease the rates gradually in lower percentages. This will keep investors interested and reputation is also maintained in the market.

References of Financial crisis