MEASURES USED BY THE FEDERAL RESERVE DURING US HOUSING BUBBLE CRISIS:

1. Interest rate policy: The Fed lowered interest rates significantly during the housing boom in order to
encourage borrowing and spending, but then raised rates in response to the subsequent economic down-
turn.
2. Quantitative easing: The Fed engaged in several rounds of QE during the housing crisis in order to sup-
port the financial system and promote economic recovery.
3. Emergency lending facilities: The Federal Reserve also created several emergency lending facilities
during the crisis, including the Term Auction Facility and the Term Asset-Backed Securities Loan Facil-
ity.
4. Regulatory oversight: The Federal Reserve also worked to strengthen regulations and oversight of the
financial system in the aftermath of the housing crisis.

MONETARY AGGREGATES

5. M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of de-
pository institutions; (2) demand deposits at commercial banks less cash items in the process of col-
lection and Federal Reserve float; and (3) other liquid deposits, consisting of other checkable deposits
and savings deposits. Seasonally adjusted M1 is constructed by summing currency, demand deposits,
and other liquid deposits, each seasonally adjusted separately.
6. M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than
$100,000) less individual retirement account (IRA) and Keogh balances at depository institutions;
and (2) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs. Sea-
sonally adjusted M2 is constructed by summing small-denomination time deposits and retail MMFs,
each seasonally adjusted separately, and adding the result to seasonally adjusted M1.

Source - International Monetary Fund

Source - Board of Governors of the Federal Reserve System

Source - World Bank

Source - Board of Governors of the Federal Reserve System
Source - Board of Governors of the Federal Reserve System

Pre-crisis measures (2003-2006):

• The Federal Reserve increased both M1 and M2 money supply during this period.
• From 2003 to 2006, M1 money supply increased from approximately $1.3 trillion to $1.4 trillion,
while M2 money supply increased from approximately $5.8 trillion to $7 trillion,
• Between June 2004 and June 2006, the Federal Reserve raised the federal funds rate from 1% to
5.25% in a series of 17 consecutive rate hikes. This was intended to cool down the housing market and
prevent the growth of speculative bubbles.

Crisis period measures (2007-2008):

• The Federal Reserve lowered the federal funds rate from 5.25% to near-zero levels between September
2007 and December 2008, as part of its efforts to stimulate the economy and prevent a financial col-
lapse.
• During the crisis period, the Federal Reserve made significant changes to the money supply in re-
sponse to the collapsing housing market and the financial crisis.
• The Federal Reserve increased both M1 and M2 money supply, with M1 money supply increasing
from approximately $1.4 trillion to $1.7 trillion, and M2 money supply increasing from approximately
$7 trillion to $8 trillion.
• The Federal Reserve also implemented a number of programs to inject liquidity into the financial sys-
tem, including the Term Auction Facility (TAF) and the Term Asset-Backed Securities Loan Facility
(TALF).
•
Immediate post-crisis measures (2009-2011):
• In the immediate post-crisis period, the Federal Reserve made some changes to the money supply to
try to stabilize the economy and prevent inflation.
 • The Federal Reserve decreased both M1 and M2 money supply during this period, with M1 money
supply decreasing from approximately $1.7 trillion to $1.6 trillion, and M2 money supply decreasing
from approximately $8 trillion to $8.8 trillion.
• The Federal Reserve also began to gradually increase interest rates during this period to prevent infla-
tion from rising too quickly.

Overall, the changes made to the money supply by the Federal Reserve during the housing bubble crisis from
2003 to 2011 were aimed at stimulating economic growth and preventing a complete collapse of the financial
system.