If the U.S. economy begins to contract, the Federal Reserve may intervene with policies to stimulate growth and prevent defaults. Potential measures include: • Lowering interest rates - The Federal Reserve may reduce the federal funds rate (currently 4.25-4.5%) to 0%, lowering borrowing costs and encouraging consumption. • Quantitative easing (QE) - By purchasing bonds, the Federal Reserve injects liquidity into the market, ensuring that businesses and consumers can access credit. • Forward guidance - The Federal Reserve may signal long-term low interest rates to reassure investors and stabilize financial markets. • Emergency loans - If the credit system fails, the Federal Reserve may provide direct loans to banks or businesses to prevent a liquidity crisis. The specific methods will depend on the severity of the recession and whether inflation (currently at 2.5%) allows for aggressive intervention. If inflation remains high, the Federal Reserve may have to balance between stimulus measures and price stability.