As stress grew in bank funding markets, the Federal Reserve created the Term Auction Facility (TAF) to auction term loans to depository institutions against collateral. The goal was to reduce stigma around borrowing and improve access to short-term funding. This marked an early shift toward crisis-era liquidity programs beyond routine open-market operations.
With funding pressures worsening, the Fed increased the amount outstanding in TAF auctions and began a series of 28-day term repurchase (repo) operations. These steps aimed to provide more predictable term funding and ease strains in short-term lending markets. The actions foreshadowed the broader expansion of emergency tools that followed in 2008.
The New York Fed initiated the Term Securities Lending Facility (TSLF), lending Treasury securities to primary dealers for 28 days against other collateral. This was designed to improve liquidity in secured funding markets and strengthen dealers’ ability to finance assets. It signaled that the Fed was extending support beyond banks to key securities-market intermediaries.
After acute market stress, the Fed authorized the Primary Dealer Credit Facility (PDCF) to provide overnight funding to primary dealers against a broad range of collateral. The facility aimed to support market-making and prevent disorderly market functioning. It was a major step because it provided a backstop to institutions outside the traditional bank discount window.
To facilitate JPMorgan Chase’s acquisition of Bear Stearns, the New York Fed created Maiden Lane LLC to purchase a portfolio of Bear Stearns assets financed largely by a Fed loan. The goal was to limit sudden asset liquidations that could destabilize markets. This use of Section 13(3) emergency authority became a central feature of the crisis response.
During money market fund runs, the Fed announced the AMLF to provide nonrecourse loans to institutions to finance purchases of high-quality asset-backed commercial paper from money market mutual funds. The program aimed to reduce forced sales in illiquid markets and help stabilize short-term funding. It addressed a key transmission channel where financial stress could quickly spread to businesses and households.
The Federal Reserve and other major central banks announced measures to provide broad access to U.S. dollar funding, including fixed-rate, full-allotment dollar operations by partner central banks. These steps aimed to ease dollar shortages that were disrupting global funding markets. They highlighted how the crisis had become international, requiring coordinated central-bank action.
To backstop short-term corporate funding, the Fed authorized the CPFF under emergency authority, later detailing that purchases would begin on October 27, 2008. The CPFF financed the purchase of highly rated, U.S. dollar-denominated, three-month commercial paper from eligible issuers. This was meant to restore liquidity in a market that many firms rely on for routine operations like payroll and inventory.
The Fed announced a program to purchase up to $100 billion in housing-related government-sponsored enterprise (GSE) debt and up to $500 billion in agency mortgage-backed securities (MBS). The intent was to reduce mortgage borrowing costs and support the housing market during a severe downturn. These purchases became a cornerstone of the Fed’s large-scale asset purchase strategy.
The Federal Open Market Committee (FOMC) moved to a target range of 0 to 1/4 percent for the federal funds rate. This was intended to provide maximum conventional monetary easing as the recession deepened and financial conditions remained strained. The decision also reinforced the shift toward using balance-sheet tools alongside near-zero short-term rates.
Facing a weak outlook, the FOMC agreed to expand purchases to as much as $1.25 trillion in agency MBS and $200 billion in agency debt, and to purchase up to $300 billion of longer-term Treasury securities. The goal was to push down longer-term interest rates and improve conditions in private credit markets. This broadened “quantitative easing” from housing-linked assets into Treasuries as well.
With the recovery still weak, the FOMC directed the New York Fed’s trading desk to purchase $600 billion of longer-term Treasury securities by mid-2011. This second round of large-scale asset purchases (often called QE2) aimed to support economic recovery and keep inflation consistent with the Fed’s mandate. The Fed also continued reinvesting principal payments to maintain accommodation.
The FOMC announced a program to sell or redeem shorter-term Treasuries and buy longer-term Treasuries, extending the average maturity of the Fed’s portfolio. The policy was intended to put downward pressure on longer-term interest rates without increasing the overall size of the balance sheet by the same amount. It reflected a shift toward shaping interest rates by changing what the Fed held, not just how much it bought.
The Fed began a third round of asset purchases by buying additional agency mortgage-backed securities at a pace of $40 billion per month. Unlike earlier programs with fixed totals, this approach was designed to continue until economic conditions improved substantially, especially in the labor market. It reinforced the Fed’s emphasis on supporting housing and broader financial conditions during a slow recovery.
As the maturity extension program ended, the FOMC shifted to outright purchases of longer-term Treasury securities at about $45 billion per month, while continuing $40 billion per month in agency MBS. Around this period, the Fed also moved toward clearer “threshold”-style guidance linking policy to unemployment and projected inflation. These steps aimed to strengthen expectations that policy would stay supportive until the recovery was more secure.
With labor market conditions improving, the Fed decided to start reducing (“tapering”) the pace of its asset purchases beginning in January 2014. The change lowered monthly Treasury purchases and MBS purchases while keeping short-term rates near zero. This marked a transition from crisis-era escalation toward a gradual exit, while still maintaining substantial monetary support.
The FOMC concluded its asset purchase program, ending the monthly additions to its holdings that had expanded the Fed’s balance sheet during the crisis and slow recovery. The decision reflected the Fed’s view that economic conditions had improved enough to stop increasing support, while continuing to reinvest principal payments to maintain accommodative financial conditions. This served as a clear endpoint to the Fed’s 2008–2014 expansion of large-scale purchases.
Federal Reserve response to the Global Financial Crisis (2007-2014)