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Recent Fed policy is shown in Table 15.1 (27.1). The unemployment and inflation rates are also shown, along with some key interest rates and federal deficit figures. At the beginning of 1990, the economy was near the full employment level, with a low rate of unemployment and a high rate of real GDP growth. As the economy slid into recession during the second half of 1990, with declines in real GDP growth and an increase in unemployment, the Fed lowered interest rates, as shown by the decline in the 3-month T-bill rate. The table shows that the T-bill rate fell from 7.0 percent in IV 1990, 6.1 in 1991 I, and by the 1991 IV, the bill rate was down to 4.6 percent. The Fed’s behavior during the 1990-1991 recession is an example of its tendency to lean against the wind. After the Fed became convinced that a recession was at hand, it responded by engaging in open market operations to lower interest rates. Some argue that the Fed should have acted sooner, but with the Persian Gulf situation uncertain (raising the possibility of a lengthy war that could prove inflationary), the Fed was reluctant to expand too much. Once the outcome of the Persian Gulf War was known, the Fed moved quickly.
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