On the beginning of the speech, she mentioned that FOMC faces two key challenges. one is the quest for maximum employment and price stability in Congress. If the main tool of our regular policy is reduced to essentially zero, it will weaken the US economy. The first challenge is led to the second one, which is how to ensure that we can reduce the monetary policy in an orderly manner when it is no longer needed. If we cannot do it the ability to promote maximum employment and price stability will be reduced.
And then, she mentioned how they solve the problems. According to the first challenge, they use monetary policy regulation to strengthening long-term interest rate guidance and large-scale asset purchases. In order to face the great recession, Fed is going to remove the policy.
what is more, she mentioned two unconventional monetary policy tools to face the great recession. There is forward-looking guidance on large-scale asset purchases and intentions toward future short-term interest rates. And FOMC is working on lowering long-term interest rates is to help the U.S. economy recover from the recession and curb deflationary pressures.
According to face future crisis like great recession, FOMC will use the impact of short-term interest rates on the federal funds rate as the primary tool.
Overall, because of the great recession, Fed face two main challenges, which is FOMC had to provide additional policy controls after its short-term interest rates had reached their effective lower limit and FOMC had to reduce the accommodation while expanding the federal reserve balance sheet.