Crisis to Recovery Timeline

Unconventional: A Policymaker's Reflections on Crisis to Recovery

Unconventional A Policymaker's Reflections on Crisis to Recovery

Pivotal Events from Crisis to Recovery: 2007-2017

2007

August

9

The Libor-OIS spread rises, escalating fear of bank insolvency. The spread is interpreted as the market’s perception of the risk associated with subprime mortgages spreading to the broader mortgage market and overall economy.

2007

September

18

The FOMC reduces the target for the federal funds rate from 5.25 to 4.75 percent.

2007

October

31

The FOMC reduces the target for the federal funds rate to 4.50 percent.

2007

December

The Great Recession begins, per the National Bureau of Economic Research.

11

The FOMC reduces the target for the federal funds rate to 4.25 percent.

12

To address pressures in short-term funding markets, the Fed establishes a temporary Term Auction Facility—whereby term funds are auctioned to depository institutions against a variety of collateral—and also establishes swap lines with the European and Swiss central banks.

2008

January

The FOMC reduces the target for the federal funds rate twice during the month, first to 3.50 percent and then to 3.00 percent.

2008

March

18

The FOMC reduces the target for the federal funds rate to 2.25 percent.

24

The New York Fed announces it would provide term financing to facilitate JPMorgan Chase’s acquisition of Bear Stearns. This action prevents Bear Stearns from filing for bankruptcy and represents one of the first bank bailouts of the financial crisis.

2008

April

1

Bullard: Succeeding William Poole, James Bullard becomes the St. Louis Fed’s president and CEO. He joined the Bank in 1990 as an economist in the Research division.

30

The FOMC reduces the target for the federal funds rate to 2.00 percent.

2008

July

An oil-price shock culminates in nominal crude oil prices peaking above $145 per barrel.

2008

September

6

Fannie Mae and Freddie Mac—the nation’s two largest mortgage finance companies—are placed into conservatorship to prevent further disruption in financial markets.

15

Lehman Brothers files for Chapter 11 bankruptcy. This announcement spurs concern in financial markets around the world.

16

The Fed authorizes the New York Fed to lend up to $85 billion to the American International Group (AIG). The deal implies that AIG was “too big to fail.”

2008

October

The FOMC reduces the target for the federal funds rate twice during the month, first to 1.50 percent and then to 1.00 percent.

2008

November

20

Bullard: In “Three Funerals and a Wedding,” Bullard discusses fiscal policy as a macroeconomic stabilization tool, a previously unpopular idea that may be taking on new life.

25

The Fed announces plans to purchase agency debt and mortgage-backed securities over several quarters—the start of quantitative easing, or QE1.

2008

December

16

The FOMC reduces the target range for the federal funds rate to zero to 0.25 percent (the zero lower bound). This occurs while the U.S. is in its worst financial crisis since the Great Depression.

2009

January

3

Bullard: In “A Two-Headed Dragon for Monetary Policy,” Bullard notes that having an explicit U.S. inflation target would mitigate two medium-term risks: a Japanese-style deflationary trap and 1970s-style inflation.

2009

March

18

The FOMC expands its large-scale asset purchase program under QE1. In total, the FOMC says it will purchase up to $1.25 trillion of mortgage-backed securities, up to $200 billion of agency debt and up to $300 billion of longer-term Treasury securities.

2009

June

The Great Recession ends, per the National Bureau of Economic Research. The recession lasted 18 months, the longest of any recession since World War II.

2010

March

22

Bullard: Regarding monetary policy normalization, Bullard calls for a last-in, first-out approach. When the normalization debate ensues, he states his preference to adjust the Fed’s balance sheet by removing QE prior to raising the policy rate.

2010

July

21

The Dodd-Frank Wall Street Reform and Consumer Protection Act is enacted. The law is adopted to regulate financial markets and protect consumers in the wake of the financial crisis.

29

Bullard: In “Seven Faces of ‘The Peril,’” Bullard warns about the U.S. falling into a Japanese-style deflationary trap. To avoid that situation, he calls for the FOMC to implement a new phase of its QE program.

2010

November

3

The FOMC begins QE2 by saying that it intends to purchase $600 billion of longer-term Treasuries by the end of the second quarter of 2011.

2011

April

27

Fed Chairman Ben Bernanke holds the first-ever press conference following an FOMC meeting. These press conferences allow the chairman to discuss the FOMC’s policy decisions and economic projections in more depth.

2011

August

5

The U.S.’s credit rating is downgraded for the first time in history. This is a symbolic blow to the world’s most pre-eminent economy.

2011

September

21

The FOMC votes to extend the average maturity of its Treasury securities (“Operation Twist”). To put downward pressure on longer-term interest rates, the Fed will purchase longer-term Treasuries using proceeds from selling or redeeming shorter-term Treasuries.

2012

January

13

Bullard: In “Death of a Theory,” Bullard discusses fiscal policy’s limited effectiveness in business cycle stabilization.

25

The FOMC adopts an explicit inflation target of 2 percent, based on headline inflation, and introduces the “dot plot,” which shows participants’ projections for the policy rate path.

2012

March

23

Bullard: In a speech, Bullard calls for the FOMC to publish a monetary policy report similar to other central banks. He says that such a report could contain a more fulsome discussion of the current state of the U.S. economy and the outlook.

2012

September

13

The FOMC votes to begin an open-ended QE program—the start of QE3. The program will continue until substantial improvement in the labor market outlook has been achieved.

2013

June

19

Bullard: At the FOMC meeting, Bullard dissents for the first time since becoming St. Louis Fed president. He dissents, in part, because he thinks announcing a plan for reducing the pace of asset purchases under QE3 is inappropriately timed, given recent data and changes to the outlook.

24

Financial markets experience significant turmoil due to uncertainty about the Fed’s timing of scaling back bond purchases, a reaction known as the “taper tantrum.”

2013

August

14

Bullard: While providing an update on the tapering debate, Bullard calls for a press conference after every FOMC meeting. Currently, press conferences are held after every other meeting.

2013

November

21

Bullard: In “The Notorious Summer of 2008,” Bullard looks back at the macroeconomic situation in 2008. He says that during the summer of that year, a case could still be made that the U.S. economy would muddle through the crisis.

2013

December

18

The FOMC announces that it will begin “tapering,” or reducing the pace of asset purchases, in further measured steps at future meetings, depending on underlying economic data.

2014

February

3

Janet Yellen becomes chair of the Board of Governors of the Federal Reserve System. Prior to that, she was vice chair of the Board of Governors.

2014

March

21

Bullard: At the Brookings Institution, Bullard discusses a paper in which the optimal monetary policy is nominal GDP targeting. This prompts him to write papers that have nominal GDP targeting or price-level targeting as optimal policy, which he calls a possible wave of the future in central banking.

2014

October

29

The FOMC announces that it will conclude QE3.

2015

December

16

The FOMC raises the target range for the federal funds rate to 0.25 to 0.50 percent—the so-called “liftoff.” This is the first step in the FOMC’s process of normalizing monetary policy.

2016

January

14

Bullard: At a presentation in Memphis, Tenn., Bullard discusses the decline in oil prices and the effect on the economy.

20

Crude oil prices fall below $27 per barrel amid financial market concerns and a global oil supply glut.

2016

June

17

Bullard: In an announcement, Bullard explains the St. Louis Fed’s new characterization of the U.S. economic outlook: Instead of assuming the economy will converge to a single, long-run outcome, the new approach to near-term projections assumes the economy could visit a set of possible regimes.

2016

December

14

The FOMC raises the target range for the federal funds rate to 0.50 to 0.75 percent.

2017

January

12

Bullard: At a presentation in New York, Bullard reflects on whether the Fed should begin reducing the size of its balance sheet (which had increased substantially under QE) now that the policy rate has been increased.

2017

March

15

The FOMC raises the target range for the federal funds rate to 0.75 to 1.00 percent.

2017

June

14

The FOMC raises the target range for the federal funds rate to 1.00 to 1.25 percent and announces plans to gradually reduce the Fed's balance sheet. This reduction would occur once normalization of the level of the federal funds rate is well underway. The announcement is interpreted as a move by the Fed to increase transparency around a future policy action in an effort to avoid another taper tantrum.

2017

September

20

The FOMC announces that it will begin gradually reducing the size of the Fed’s $4.5 trillion balance sheet in October.

2017

December

1

Bullard: At a presentation in Little Rock, Ark., Bullard discusses the flattening U.S. yield curve and the risk of yield curve inversion. He says that, with inflation below the Fed’s target, it is unnecessary to push monetary policy normalization to such an extent that the yield curve inverts.

13

The FOMC raises the target range for the federal funds rate to 1.25 to 1.50 percent, representing the third rate hike in 2017.

NOTE: The timeline ends in 2017. Jerome Powell becomes chairman of the Board of Governors of the Federal Reserve System on Feb. 5, 2018.


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