How Quantitative Easing Came to Be

Bernanke took charge as the Fed awoke in 2008 to the need for a full-on war against "global economic and financial freefall."

In December 2008, Ben S. Bernanke, the self-effacing chairman of the Federal Reserve, declared war against a cascading recession and took charge as general.

Breaking with protocol as the Federal Open Market Committee (FOMC) convened on the afternoon of Dec. 15, Bernanke asked his colleagues’ “indulgence” to speak first. Faced with cutting the benchmark interest rate to zero to fight a worsening crisis policy makers were late to recognize, Bernanke said the FOMC was about to embark on new approaches that contained “deep and difficult issues.”

In arguing for a reduction in the funds rate to 3.5 percent, Bernanke invoked work by academic economists Carmen Reinhart and Kenneth Rogoff that suggested the U.S. faced the risk of a severe financial crisis and a deep recession. In subsequent meetings, he pushed for further rate reductions. By April, the rate was down to 2 percent and Bernanke was ready to take a break.

“I think we ought to at least modestly congratulate ourselves that we have made some progress,” Bernanke told his colleagues on April 30. “Our policy actions, including both rate cuts and the liquidity measures, have seemed to have had some benefit.”

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