The 2008-2009 recession was long and deep, and according to several indicators was the most severe economic contraction since the 1930s (but still much less severe than the Great Depression). The slowdown of economic activity was moderate through the first half of 2008, but at that point the weakening economy was overtaken by a major financial crisis that would exacerbate the economic weakness and accelerate the decline. When the fall of economic activity finally bottomed out in the second half of 2009, real gross domestic product (GDP) had contracted by approximately 5.1%, or by about $680 billion. At this point the output gap—the difference between what the economy could produce and what it actually produced—widened to an estimated 8.1%. The decline in economic activity was much sharper than in the 10 previous post-war recessions, in which the fall of real GDP averaged about 2.0% and the output gap increased to near 4.0% (see Figure 1 ). However, the decline falls well short of the experience during the Great Depression, when real GDP decreased by 30% and the output gap probably exceeded 40%. As output decreased the unemployment rate increased, rising from 4.6% in 2007 to a peak of 10.1% in October 2009. The U.S. unemployment rate has not been at this level since 1982, when in the aftermath of the 1981 recession it reached 10.8%, the highest rate of the post-war period. (During the Great Depression the unemployment rate reached 25%.) This rise in the unemployment rate translates to about 7 million persons put out of work during the recession. Another 8.5 million workers have been pushed involuntarily into part-time employment. The recession was intertwined with a major financial crisis that exacerbated the negative effects on the economy. Falling stock and house prices led to a large decline in household wealth (net worth), which plummeted by over $16 trillion or about 24% during 2008 and 2009. In addition, the financial panic led to an explosion of risk premiums (i.e., compensation to investors for accepting extra risk over relatively risk-free investments such as U.S. Treasury securities) that froze the flow of credit to the economy, crimping credit supported spending by consumers such as for automobiles, as well as business spending on new plant and equipment. The negative shocks the economy received in 2008 and 2009 were, arguably, more severe than what occurred in 1929. However, unlike in 1929, the severe negative impulses did not turn a recession into a depression, arguably because timely and sizable policy responses by the government helped to support aggregate spending and stabilize the financial system. That stimulative economic policies would have this beneficial effect on a collapsing economy is consistent with standard macroeconomic theory, but without the counterfactual of the economy's path in the absence of these policies, it is difficult to establish with precision how effective these policies were. Both monetary and fiscal policies as well as some extraordinary measures were applied to counter the economic decline. This policy response is thought to have forestalled a more severe economic contraction, helping to turn the economy into the incipient economic recovery by mid-2009. These policies likely continued to stimulate economic activity into 2012. To bolster the liquidity of the financial system and stimulate the economy, during 2008 and 2009 the Federal Reserve (Fed) aggressively applied conventional monetary stimulus by lowering the federal funds rate to near zero and boldly expanding its "lender of last resort" role, creating new lending programs to better channel needed liquidity to the financial system and induce greater confidence among lenders. Following the worsening of the financial crisis in September 2008, the Fed grew its balance sheet by lending to the financial system. As a result, between September and November 2008, the Fed's balance sheet more than doubled, increasing from under $1 trillion to more than $2 trillion. By the beginning of 2009, demand for loans from the Fed was falling as financial conditions normalized. Had the Fed done nothing to offset the fall in lending, the balance sheet would have shrunk by a commensurate amount, and some of the stimulus that it had added to the economy would have been withdrawn. In the spring of 2009, the Fed judged that the economy, which remained in a recession, still needed additional stimulus. On March 18, 2009, the Fed announced a commitment to purchase $300 billion of Treasury securities, $200 billion of Agency debt (later revised to $175 billion), and $1.25 trillion of Agency mortgage-backed securities. The Fed's planned purchases of Treasury securities were completed by the fall of 2009 and planned Agency purchases were completed by the spring of 2010. At this point, the Fed's balance sheet stood at just above $2 trillion. (Further monetary policy actions taken to accelerate the pace of economic recovery are discussed later in the report.) Congress and the Bush Administration enacted the Economic Stimulus Act of 2008 ( P.L. 110-185 ). This act was a $120 billion package that provided tax rebates to households and accelerated depreciation rules for business. Congress and the Obama Administration passed the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 1 11 -5 ). This was a $787 billion package with $286 billion of tax cuts and $501 billion of spending increases that relative to what would have happened without ARRA is estimated to have raised real GDP between 1.5% and 4.2% in 2010 but increased real GDP by progressively smaller amounts in the years that followed. In terms of extraordinary measures, Congress and the Bush Administration passed the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ), creating the Troubled Asset Relief Program (TARP). TARP authorized the Treasury to use up to $700 billion to directly bolster the capital position of banks or to remove troubled assets from bank balance sheets. Congress was an active participant in the emergence of these policy responses and has an ongoing interest in macroeconomic conditions. Current macroeconomic concerns include whether the economic recovery will be sustained, reducing unemployment, speeding a return to normal output and employment growth, and addressing government's long-term debt situation. The U.S. economy, as measured by real GDP growth (i.e., GDP adjusted for inflation) began to recover in mid-2009. However, the pace of growth over the next 3½ years was slow and uneven. From the second half of 2009 and through 2010 real GDP increased at an annualized rate of 2.5%. Compared with the early stage of previous post-war economic recoveries, this is a relatively slow pace and much of the economy's upward momentum at this time was sustained by the transitory factors of inventory increases and fiscal stimulus. Therefore, sustainable recovery would depend on more enduring sources of demand such spending by consumers and businesses reviving to give continued momentum to the recovery. To a degree, this occurred, but the momentum provided has been lackluster, with the pace of growth decelerating to a 1.8% annualized rate, and the output gap remains sizable (see Figure 2 ), prompting recurring concerns about the recovery's sustainability. While business investment spending has been relatively strong during the recovery, consumer spending, typically accounting for two-thirds of final demand, has been relatively weak. Moreover, in 2011-2012, the sharply fading effects of fiscal stimulus and weaker growth in Europe have likely dampened economic growth. Nonetheless, economic activity in the private economy shows signs of slow but steady improvement. Credit conditions have improved, making getting loans easier for consumers and businesses, loosening a constraint on many types of credit supported expenditures. The Fed's January 2013 survey of senior loan officers indicated that, on net, bank lending standards and terms continued to ease during the previous three months and that the demand for commercial and industrial loans had increased. The stock market has rebounded and interest rate spreads on corporate bonds have narrowed. The Dow Jones stock index, which had plunged to near 6500 in March 2009, by early 2013 had regained all of its lost capitalization. Spreads on investment-grade corporate bonds, a measure of the lenders' perception of risk and creditworthiness of borrowers, have fallen from a high of 600 basis points in December 2008 to near 25 basis points in early 2013. Manufacturing activity has shown steady improvement during the recovery. Through February 2013, output had increased 2.0% over a year earlier. Capacity utilization has risen from a low of 64% in mid-2009 to 78.3% in February 2013. (A capacity utilization rate of 80%-85% would be typical for a fully recovered economy.) From mid-2009 through February 2013, non-farm payroll employment has increased by about 4 million jobs. Monthly gains have been consistently positive since late 2010, but as evidenced by a weak gain of only 88,000 jobs in March 2013, often not at a scale characteristic of a strong recovery. However, for the 12 months ending in March 2013, monthly employment gains have increased; averaging about 160,000 jobs (see Figure 3 ). The housing sector has recently shown evidence of improving health. Private new housing starts pushed above 900,000 in December 2012, most recently increasing at an annual rate of 917,000 units in February 2013, up from less than 400,000 units during the recession (see Figure 4 ). Also, house prices have begun to increase, on average, up about 8% over 12 months ending January 2013. On the other hand, growth is well below the historical norm for U.S. economic recoveries as persistent sources of economic weakness continue to dampen economic activity. Pointing to the slow pace of real GDP growth over 3½ years of recovery, the output gap had narrowed to only 5.8% of real GDP (see Figure 2 ). Consumer spending, the usual engine of a strong economic recovery, remains tepid, generally slowed by households' ongoing need to rebuild substantial net worth lost during the recession, continued high unemployment and underemployment, and a surge in energy prices in the first half of 2012.