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The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II. Beyond its duration, the Great Recession was notably severe in several respects. Real gross domestic product (GDP) fell 4.3 percent from its peak in 2007Q4 to its trough in 2009Q2, the largest decline in the postwar era (based on data as of October 2013). The unemployment rate, which was 5 percent in December 2007, rose to 9.5 percent in June 2009 and peaked at 10 percent in October 2009. The financial effects of the Great Recession were similarly outsized: Home prices fell approximately 30 percent, on average, from their mid-2006 peak to mid-2009, while the S&P 500 index fell 57 percent from its October 2007 peak to its trough in March 2009. The net worth of US households and nonprofit organizations fell from a peak of approximately $69 trillion in 2007 to a trough of $55 trillion in 2009. (Federal Reserve History, 2013)
The FED employed policy actions such as reducing the federal funds rate from 5.25 percent in September 2007 to a range of 0-0.25 percent in December 2008, with much of the reduction occurring from January to March 2008 and from September to December 2008. The sharp reduction in those periods reflected a marked downgrade in the economic outlook and the increased downside risks to both output and inflation. The Fed pursued two other types of “nontraditional” policy actions during the Great Recession. One set of nontraditional policies can be characterized as credit easing programs that sought to facilitate credit flows and reduce the cost of credit. Another set of non-traditional policies consisted of the large-scale asset purchase (LSAP) programs. With the federal funds rate near zero, asset purchases were implemented to help push down longer-term public and private borrowing rates. In November 2008, the Fed announced that it would purchase US agency mortgage-backed securities (MBS) and the debt of housing-related US government agencies (Fannie Mae, Freddie Mac, and the Federal Home Loan banks). The choice of assets was partly aimed at reducing the cost and increasing the availability of credit for home purchases. These purchases provided support for the housing market, which was the epicenter of the crisis and recession, and also helped improve broader financial conditions.
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