erent. In the late-1920s, the Federal Reserve +allowed tight money policies. High interest rates led to a credit crunch, which put a damper on domestic consumption. But this diverted funds into the stock market because anticipated returns were much greater than alternative investments.
During the 1980s, the Federal Reserve +allowed expansionary monetary policies. Interest rates, which had peaked above 20% at the beginning of the decade, had been reduced substantially. Easy credit policies helped to fuel the strong recovery from the 198182 recession, and one of the longest periods of sustained growth in U.S. history. The market boom was partially led by economic growth, which was driven by modest interest rates.
Significant differences in Federal Reserve policies following the crashes suggest that a severe depression will not be triggered by the 1987 crash. After the 1929 crash, the Federal Reserve allowed the money supply and availability of credit to shrink. U.S. lending abroad was curtailed, and conditions put a damper on demand. Many critics blame FED policies for having created the depression a+ the 1930s. The money crisis reached a point where people were taking funds out of banks in panic, and the run an banks caused many bank failures.
In contrast, although the FED raised interest rates in September, 1987, it immediately reversed policy after the stock marke
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