The Federal Reserve Bank, established in 1913, has the duty of regulating money and credit. It issues Federal Reserve Notes, clears checks, acts as a fiscal agent to the federal government, and audits and maintains competition in the banking system. The goals of the Federal Reserve are to maintain price stability, keep unemployment at the optimal level, and avoid financial crisis. In order to meet these goals the Federal Reserve can change the legal reserve requirement or change the interest rates as market environments change. After the collapse of Lehman Brothers and the start of the financial crisis, the Federal Reserve initiated quantitative easing, in which the Fed would pump money into the economy in order to keep interest rates low. .
Quantitative easing 1, or QE1, began in November of 2008 shortly after the collapse of Lehman Brothers and lasted around 17 months. During this period the Federal Reserve spent $100 billion every month buying mortgage-backed securities, by the end of the program the Federal Reserve had spent $1.7 trillion dollars on these securities. QE1 brought about a 50% increase in the value of gas and gold throughout the 17 months it was in effect which indicated that demand had gone up due to the investment made by the Federal Reserve. After this round of quantitative easing, interest rates decreased from 6.3% to 5.2%.
Quantitative easing 2, or QE2, began 7 months after the end of QE1 in November of 2010, and lasted 7 months until June of 2011. In this round, the Federal Reserve decided to spend $85 billion on U.S. Treasuries per month, resulting in a total planned expenditure of $600 billion for the easing period. The difference here is that compared to QE1, QE2 involved buying treasuries rather than low performing mortgage securities. QE2 resulted in interest rates being lowered to 4.6%, not as much of a difference caused by QE1 but it still had the desired result of lowered interest rates.
