What significant change did the Federal Reserve implement during the Great Depression?

During the Great Depression, the Federal Reserve implemented a significant change by tightening credit, which involved raising interest rates. This action was believed to be intended to control inflation and stabilize the economy; however, it inadvertently contributed to the economic downturn. By making borrowing more expensive, this policy restricted access to credit during a time when individuals and businesses needed liquidity and support to sustain their activities.

The decision to raise interest rates in the early years of the Great Depression was based on the assumption that the economy would stabilize and inflation needed to be kept in check. Unfortunately, this approach led to reduced consumer spending and business investment, further exacerbating the economic crisis. Thus, while the intent was to create a healthy financial environment, the execution of tightening credit at a time when economic growth was desperately needed proved to be counterproductive, leading to deeper economic challenges.