. i will now talk about the conventional and unconventional actions that the federal reserve, for its part, has taken to foster economic recovery and job creation. conventional monetary policy actions the conventional tool of monetary policy is to modify the near - term path of interest rates. to be more specific, a reduction in current short - term rates and a corresponding downward shift in private - sector expectations about the future path of such rates will tend to reduce borrowing rates for households and businesses, including auto loan rates, mortgage rates, and other longer - term interest rates. this policy accommodation also tends to raise household wealth by boosting the stock market and prices of other financial assets. with greater household wealth and cheaper borrowing rates, consumers tend to increase their purchases of houses, cars, and various other goods and services. in response, businesses ramp up their production to meet the increased level of sales. moreover, with lower costs of financing new equipment and structures, businesses may be inclined to increase their own spending on investment projects that they might previously have seen as only marginally profitable. in the near term, firms can meet increased demand by resorting to temporary and part - time workers, but over time they have strong incentives to increase the number of regular full - time employees. consequently, the monetary accommodation leads to greater job creation, though sometimes with substantial time lags. the federal reserve has used this policy tool aggressively since the onset of the financial crisis. in particular, the federal funds rate target, which stood at 5 - 1 / 4 percent in mid - 2007, was subsequently reduced to a range of 0 to 1 / 4 percentage point by the end of 2008, and that target range has been maintained since then. indeed, because currency has an implicit interest rate of exactly zero, economists generally agree that a zero interest rate is the effective lower bound for the federal funds rate because investors could simply choose to hold cash if a central bank tried to drive short - term interest rates significantly below zero. in effect, therefore, the fomc has been deploying its conventional policy tool to the maximum extent possible since late 2008. rather than reviewing the vast academic literature regarding the effect of conventional monetary policy, i will simply pose the counterfactual question : what would have happened to u. s. employment if monetary policy had failed to respond forcefully to the financial crisis and economic downturn? economic models – the fed ’ s and others – suggest that if the federal funds rate target had been held at a fixed level of 5 percent

recoveries. consumer spending is also being restrained by the excess supply of housing, which has put downward pressure on home equity values and household wealth. a substantial portion of homeowners now have negative home equity and are effectively unable to refinance at historically low mortgage rates. many more have seen a drastic decline in the value of their homes, which would typically serve as collateral for home equity lines of credit or second mortgages. the slow progress in repairing and restructuring households ’ balance sheets may also be lowering the normal responsiveness of consumer spending to a decline in market interest rates. in particular, lenders continue to maintain relatively tight terms and standards on credit cards and, to a lesser extent, other consumer loans. consequently, many households may be unable to take advantage of the lower borrowing rates that are available to those who have a high net worth and pristine credit records. many small businesses also appear to be facing unusual obstacles in obtaining credit. if times were more typical, we would expect a smooth transmission in which lower interest rates would fuel credit expansion that would be used to finance expanding payrolls, capital investment, inventories, and other short - term operating expenses. nonetheless, the latest federal reserve senior loan officer opinion survey on bank lending practices, which was taken in july, indicated that although domestic banks continued to ease standards on their commercial and industrial loans, the net fraction reporting easing on such loans to smaller firms ( those with annual sales of less than $ 50 billion ) remained low and was well below that bis central bankers ’ speeches of loans to large and middle - sized firms. 7 in its august survey, the national federation of independent businesses reported a noticeable increase in the proportion of small businesses reporting that credit has become more difficult to obtain. 8 these businesses not only expect credit to become tighter in coming months but – like other businesses – have turned sharply more pessimistic about the broader economic outlook. finally, and perhaps most comprehensively, it is worth observing that the financial crisis has undermined the wealth of many americans. low - and moderate - income families entered the recession with little financial buffer against the adverse effects of wage cuts, job loss, and drops in home values. according to the 2007 survey of consumer finances ( scf ), home equity accounted for about half of the total net worth for low - and moderate - income families, which made them extremely vulnerable to the eventual housing market collapse. 9 families at the lower end of the income distribution saw a substantial drop in their net worth