The federal funds rate was initially reduced by the Fed via "conventional" policy operations, from 5.25 percent in September 2007 to a range of 0-0.25 percent in December 2008, with the majority of the drop taking place in January to March 2008 and in September to December 2008.
The significant decline during those times was due to the economic outlook being significantly downgraded and the increasing downside risks to output and inflation (including the risk of deflation).
By December 2008, the federal funds rate had reached its effective lower bound, and the FOMC had started using its policy statement to give the federal funds rate forward guidance.
The phrase mentioned maintaining the rate at very low levels "for some time" and then "for an extended period" (Board of Governors 2008). (Board of Governors 2009a).
By lowering the term structure of interest rates, raising inflation expectations (or lowering the likelihood of deflation), and lowering real interest rates, this guideline was meant to stimulate the economy's monetary system.
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