Ben Bernanke, Federal Reserve Chairman, has said that rate cuts and tax rebates should be able to keep the US out of a recession. All you ever hear about in the news is the Fed cutting the prime lending rate. Ok, so if you can get approved, it should be cheaper to get short term lines, and the interest rate on my credit cards should go down. It doesn’t seem like encouraging people to max out their home equity loans and credit cards would be the main/only solution. What else is the Fed able to influence/adjust?
They also control how much money banks can loan which affects the rate of inflation which directly affects the value of everyones money. There are other effects, but this is one of the easiest to understand. I even think there is a staff report about how inflation works somewhere…