Discretionary Policymaking

The act of responding to economic events as they occur, rather than in ways it might previously have been planned in the absence of those events.

For example, the U.S. central banking system, the Federal Reserve (the Fed), in partnership with central banks around the world, took several steps to address the subprime mortgage crisis that started in 2008. The Fed and other central banks have conducted open market operations to ensure member banks have access to funds, ensuring market liquidity. Central banks have also lowered the interest rates charged to member banks (discount rate) for short-term loans. By invoking the emergency authority under the Federal Reserve Act of 1913 the Federal Reserve Bank was able to authorize broad-based program and financial assistance to individual institutions to stabilize financial markets.