Criticism of The Federal Reserve - Global Financial Crisis

Global Financial Crisis

Some economists, such as John B. Taylor, have asserted that the Fed was responsible, or at least partially responsible, for the United States housing bubble which occurred prior to the 2007 recession. They claim that the Fed kept interest rates too low following the 2001 recession, The housing bubble then led to the credit crunch. Then-Chairman Alan Greenspan disputes this interpretation. He points out that the Fed's control over the long-term interest rates critics have in mind is only indirect. The Fed did raise the short term interest rate over which it has control (i.e. the federal funds rate), but the long term interest rate (which usually follows the former) did not increase.

The Federal Reserve's role as a supervisor and regulator has been criticized as being ineffective. Former U.S. Senator Chris Dodd, then-chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, remarked about the Fed's role in the present economic crisis, "We saw over the last number of years when they took on consumer protection responsibilities and the regulation of bank holding companies, it was an abysmal failure."