Question

To stimulate the economy following the recession of 2008, the Fed gained the ability to pay interest on reserves. This led to more excess reserves, which pushed the federal funds rate

Answer 1

The first thing that Fed did in the early stages of 2008 was to handle unemployment and inflation. Here Fed reduced interest rates, these interest rates are the rates that banks pay each other for short term loans.

The idea was to reduce rates so that the loans become cheaper, and more business houses will be willing to invest more, and thereby creating employment, and spurring the economy.

It didn’t help and by the end of the year, the federal fund rate was standing at zero.