Path-Dependent Monetary Policy in the Post-Financial Crisis Era of Dodd-Frank

This paper reviews the major monetary policy actions taken by the Federal Reserve to address the economic and financial collapse during and following the Financial Crisis. The paper carefully reviews and analyzes the extreme measures that were taken by the Fed, including its zero interest rate policy; the series of unconventional monetary policy programs, including three rounds of Large Scale Asset Purchases; and a variety of special lending programs that extended the federal safety net to non-bank businesses. The Fed's crisis communications strategies are evaluated; the author believes the Fed needs to put more effort into communicating its policies to the general public, and needs to be more sensitive to the dangers of providing forward guidance that ultra-low interest rates will prevail in the future, even after significant economic improvements have occurred. A healthy banking and financial sector is an absolute prerequisite for monetary policy to achieve its goals; however, Dodd-Frank does little to improve the resilience of the financial system, and thereby is likely to undermine the efficacy of monetary policy in the future.