Asked if there is any way to pump liquidity into the markets without reinforcing commodities speculation, Rosengren said that, "Unfortunately, we don't have much control over where the money goes after we push it into the market."

The purpose of the liquidity provisioning "has not been to cause commodity speculation," he said. "I think there have been some very beneficial things to come out of liquidity moves."

From Q&A as reported by Market News International

Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets.

From Q&A as reported by Bloomberg News

I think he has been battled hardened. I think we all have been battle hardened. We found that the pipes in the great sprinkler system we call the economy were clogged  ... We needed to change our tool kit ... I think his pragmatic hardball approach has been very
productive.

From Q&A as reported by Market News International

We saw a debauching of the credit system. To correct that, financiers, whether they be banks or homeowners, will be more cautious as they proceed.

As reported by Market News International

I think the Federal Reserve has taken appropriate policy steps to respond to a significant financial shock, the shock that rendered some markets illiquid, and which has affected the economic outlook negatively.

In this environment, policy needs to remain sensitive to evolving financial conditions and to incoming information on business activity.

As reported by Reuters.

The potential for headwinds is integral to thinking about U.S. economic prospects over the next year or two. To the extent that headwinds gain momentum, and we have seen a few squalls already, they suggest relatively modest growth for a time and the likelihood of increases in the unemployment rate.

As reported by Market News International

Clearly, the market discipline that “sophisticated investors” are supposed to provide was lacking.  As we saw, even some of the largest, most sophisticated financial institutions inadequately incorporated into their risk-management models the full range of hazards entailed in the originate-to-distribute business and the liquidity risks that would result from a drying up of short-term funding. Also lacking were reliable ratings from the agencies. But financial supervisors and regulators, including the Federal Reserve, were behind the curve, as well.  We missed some of the risky developments that were unfolding.  Our consumer regulations were unfortunately insufficient to protect households from some egregious and unfair lending practices. And we took too long to ramp up some supervisory policies in the face of mounting risks.

Whether the economies of the rest of the world have successfully decoupled from the United States is a judgment we will have to leave to the economic historians. What I do believe, however, is that our financial markets at the center of this turmoil have not decoupled, not even a little bit. In fact, our financial institutions and financial markets have never been more integrated. Policy differences, thus, should not be taken lightly.

Consistent with Munger's admonition, the Fed saw it necessary to expand our toolkit beyond the proverbial hammer of the policy rate in the last nine months. And as I discussed in remarks last month, the Fed's nontraditional policy response included the use of innovative liquidity tools to counter the market turmoil and improve the functioning of financial and credit markets.⁴

In my remarks today, I would like to discuss the use of the hammer--the setting of the federal funds rate--particularly in extraordinary times. Of course, determining the proper level of the federal funds rate is rarely simple, given typical imprecision on key economic variables and relationships. It is far more challenging still when the financial architecture is in the early stages of redesign, the economy is adjusting to the aftermath of a credit bubble (witnessed most acutely in the housing markets), and inflation risks are evident.

The Federal Reserve has employed the hammer with considerable force in the last nine months, lowering the federal funds rate by 3-1/4 percentage points, with wide-ranging implications for the economy. Of substantial import, we have filled the toolkit with other implements to provide liquidity and improve the provisioning of credit during the turmoil. But now, policymakers may be well served encouraging a new financial architecture to emerge, aided, in part, by the actions we have taken. Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again.

Policy actions should reinforce the notion with stakeholders that further hammering needs to be done, but it needs to be accomplished by the financial institutions themselves in retooling their businesses and rebuilding the credit channel to help ensure a stronger, more durable economy.

In fact, the increase in LIBOR to overnight indexed swap (OIS) spreads may understate the degree of upward pressure on term funding rates. Note that after a Wall Street Journal article on April 16 questioned the veracity of some of the LIBOR respondents and the British Bankers Association threatened to expel any banks that they discovered had been less than fully honest—LIBOR spreads increased further.

Since the credit crisis began last August, the Fed has expanded the volume and types of loans it is willing to make to banks and securities dealers -- loans that are backed by a wide variety of collateral from subprime mortgages to student loans...

Mr. Volcker, testifying on responses to the credit crisis at the Joint Economic Committee of Congress Wednesday, said such activity "has not been the tradition of the central bank and I think that is an issue for the long run for the independence of the central bank. If it is going to be looked to as the rescuer or supporter of a particular section of the market, that is not strictly a monetary function in the way it's been interpreted in the past."

As reported by the Wall Street Journal

Recent research by Allen and Gale (2007) confirms that, in principle at least, "fire sales" forced by sharp increases in investors' liquidity preference can drive asset prices below their fundamental value, at significant cost to the financial system and the economy. Their work underscores the basic logic in Bagehot's prescription for crisis management: A central bank may be able to eliminate, or at least attenuate, adverse outcomes by making cash loans secured by borrowers' illiquid but sound assets. Thus, borrowers can avoid selling securities into an illiquid market, and the potential for economic damage--arising, for example, from the unavailability of credit for productive purposes or the inefficient liquidation of long-term investments--is substantially reduced.

Earlier, I mentioned the potential impact of the recent financial market disruptions on growth. Indeed, concern with the effects of these disruptions and, in particular, the possibility they could lead to a severe credit contraction was the principal motivation for the aggressive easing of monetary policy by the Federal Reserve over the past several months. ... Although credit conditions have tightened considerably in recent months and some markets for asset-backed securities have shut down, we have not seen as large a credit crunch as some anticipated. Indeed, outside of some mortgage markets, consumers and businesses with strong credit histories have continued to have access to credit on reasonable terms. Consequently, in my opinion, financial markets disruptions, while noteworthy, are not the major story behind the recent weakness in economic activity. Energy price increases and housing dominate this slowdown.

From the standpoint of private market discipline, this crisis has provided the first major test of securitization, complex financial instruments, risk modeling, and our new and broader market structure. Recent events indicate dismal test results: Many financial institutions and investors did not adequately judge, price or control the risks they assumed and did not prepare well for changing financial conditions.

It is a simple fact of history that, over a business cycle, markets tend toward excess optimism in which risk is seriously underestimated. In some cases, public policy is required to “bail out” undeserving parties so as to minimize the broader impact on the economy. It is also a fact that no matter the source of the financial problem, no matter the size of the institution or the region in which the problem emerges, the Federal Reserve will be part of any solution that is developed. This was the case in the ’70s, ’80s and ’90s during the foreign debt, farm, real estate and energy crises and is the case today. As a necessary principal party in prudential supervision and as the lender of last resort, the Federal Reserve is best positioned for this task.