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Abstract
To response the serious credit crisis, the U.S. Federal Reserve (Fed) increased money supply, decreased interest rate, ease the condition for raising funds. The responses took by U.S. fed did ease the stress in financial market to reduced the liquidity risk faced by banks. Unlike the expectation, the U.S inflation was continuously stronger and U.S. dollar was depreciated. The outlook of economic was still pessimistic. Meanwhile, this strategy might increase the risk of moral hazard due to the survival of those banks with high credit risk investments.
Key Words: Credit Crisis, Subprime mortgage, Moral hazard.
Total Words: 1145

1. Introduction
In August 2007, worldwide "credit crunch" as subprime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world. As the credit crisis, banks became protective of their liquidity and balance sheet capacity and thus to become noticeably less willing to provide funding to other banks. In such illiquid financial condition, the banks were facing the risk of widespread insolvency to other banks and intensify the crisis as result.
To response to credit crisis, U.S. Federal Reserve (Fed) then injected about $100B into the money supply for banks to borrow at a low rate. Between September 18, 2007 and April 30, 2008, the target for the Federal funds rate was lowered from 5.25% to 2% and the discount rate was lowered from 5.75% to 2.25%, through six separate actions.In addition, the term of loans was extended twice and changed from overnight to up to 90 days. It allowed collateralization of such loans by a broad range of investment-grade debt security, and extended use of discount rate to a group of non-banks, the primary dealers.
In this paper, I would appraise the responses that Fed made through 3 impacts including financial market liquidity, economic impacts, moral hazard. After that, it can be concluded that the...