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In a unanimous vote, the US Federal Reserve slashed the Fed funds rate from 1% to a range of 0.00-0.25% (apparently they can set a range, something I was admittedly unfamiliar with). This is the lowest range in Fed history, and the statement made it clear that rates would remain near zero for "some time" to come (a "commitment" until the economy reverses). The Fed also indicated that it will take unorthodox measures to combat the deepening recession, throwing out convention and undertaking broad quantitative easing through increasing reserves and expanding its balance sheet. I also believe it signaled a fear that we have entered a liquidity trap (as Krugman explains it, "that awkward condition in which monetary policy loses its grip because the nominal interest rate is essentially zero, in which the quantity of money becomes irrelevant because money and bonds are essentially perfect substitutes"). The Fed will likely purchase mortgage debt to influence their yields (as opposed to directly setting target rates) and T-bills.

If you believe the likes of Keynes, Friedman and Bernanke, the Fed has just prevented a depression.

How you ask? One perspective would argue that the great depression was deepened by the reluctance of monetary policymakers to bring rates to zero. An official attachment to the prevailing gold standard orthodoxy is a common explanation in IPE for this hesitation (see Eichengreen). Bernanke and co. have just squashed that fear (but an argument might be made that it is too much too late, that Bernanke went against his own instinct and balked). A second perspective thinks the effect of the interest rate tool is overstated. It instead focuses on the lack of liquidity provision as the determinant factor in plunging the world into depression. The argument is that by directly expanding the money base the value attached to cash and other short term securities falls to a level at which investors will move into higher yielding assets and consumers/banks will spend again. Well, Bernanke and co. has that base covered as well. Start priming the printing presses, cause we're about to see a whole lot of dollars. What, then, if we are in a liquidity trap, and neither policy option is sufficient alone or in combo? That's where the creativity comes in. It won't be easy, but the Fed is finally saying to the world, "We will do anything it takes to turn this thing around".

In my humble opinion, we should all be thankful that the real Benjamin Shalom Bernanke has finally shown up.

A funny side note- the folks at Fast Money on CNBC (a show I personally find obnoxious, but am sick in bed and dealing with it) recognized that Ben Bernanke's nickname is no longer appropriate. Bernanke is known as "Helicopter Ben". This stems from his scholarship on the depression, and his argument that monetary policymakers should figuratively dump money from a helicopter if necessary to fight deflation (derived from Milton Friedman's 'helicopter money' concept). The Fast Money crew noted that the Fed's actions have gone well beyond a "dump", and that a "Carpet bombing Ben" moniker would be more fitting.