Final answer:
Lowering the federal funds rate by 0.5% would be the best course of action given the current economic situation as it has been historically used to stimulate the economy during times of recession. So, the correct option is E. Lower the federal funds rate by 0.5%.
Step-by-step explanation:
The best course of action given the current economic situation would be to lower the federal funds rate by 0.5%. The Federal Reserve has historically used lowering interest rates as a tool to stimulate the economy during times of recession. As evidenced by past practices, such as during the 2008-2009 financial crisis and the subsequent COVID-19 recession in 2020, the Federal Reserve has chosen to implement a reduction in the federal funds rate to provide crucial support to the financial system and propel aggregate demand.
As mentioned in the given information, in both the recession of 2008-2009 and the COVID-19 recession of 2020, the Fed chose to lower the federal funds rate to support the financial system and stimulate aggregate demand. Lowering interest rates encourages borrowing and spending, which can help boost economic growth.