ABSTRACT
This chapter discusses what the Fed has done in difficult times and explains why its policies were often inadequate or misguided, although the problems the Fed encountered when it tried to make corrections were not always its fault. It presents what think the Fed should have done in various difficult periods. In summary, monetary policy is especially susceptible to mistakes when the economy is not performing acceptably and inflation is out of control. During such periods, the Fed is not fine-tuning policy and problems cannot be corrected without major economic repercussions. These are cross-road conditions, and the Fed needs to respond forcefully. The less often such periods occur, the less prone the Fed is to making major policy mistakes. An improved use of monetary policy tools can limit the number of crossroad periods. Federal funds targeting, window borrowing approaches, and discount rate policies have left much to be desired.
