Recent experience illustrates this point. Consider the fact that the Fed cut interest rates sharply in response to two of the most serious financial crises in recent years: the October 1987 stock market break and the turmoil following the Russian default in 1998. Arguably, in retrospect, interest rate policy remained too easy for too long in both cases. The latitude to increase bank reserves independently of interest rate policy conceivably could have enabled the Fed to stabilize financial markets in those cases with less risk of stimulating the overall economy excessively. To some degree, the Fed can already manage broad.
