Fed studying ways to boost recovery

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WASHINGTON --- Federal Reserve policy-makers are in a bind: They want to say and do things that will energize the economy, but in doing so they risk making things worse by sending signals that the recovery is in really bad shape.

Today, Fed Chairman Ben Bernanke and his colleagues on the Federal Open Market Committee will discuss whether to take any new action aimed at stimulating economic growth.

The pressure to act rose Friday with the release of July's disappointing jobs report. That showed the unemployment rate stuck at 9.5 percent and a third consecutive month of anemic hiring from the private sector.

"This was not a report that will make anyone happy. As for the Fed ... the members may decide to do something to show they are taking action," said economist Joel Naroff, the president of Naroff Economic Advisors.

Economists say Fed officials have a handful of options at their disposal but would likely consider two options for perking up the economy:

- Clarify that the Fed will keep short-term interest rates at record lows for as long as it takes to encourage more use of credit.

- Use the proceeds from the Fed's investments in mortgage securities to buy government debt on a small scale. That could help drive down long-term interest rates.

The Fed's focus again on energizing the recovery is a shift from earlier this year, when it was starting to lay out its "exit strategy" for eventually boosting interest rates.

At today's meeting, the Fed is all but certain to leave its key bank lending rate between zero and 0.25 percent, where it has been since December 2008.

There's a chance the Fed could build on its pledge to hold this rate at record lows for an "extended period."

That means rates on certain credit cards, home equity loans, some adjustable rate mortgages and other consumer loans will stay low. Commercial banks' prime lending rate would stay at about 3.25 percent.

The Fed also could bolster its policy statement, echoing Bernanke's promise to lawmakers last month that the Fed is "prepared to take further policy actions as needed," said Michael Feroli, economist at JPMorgan Chase Bank.

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omnomnom 08/10/10 - 03:47 am
Okay... So,... option A)

Okay... So,... option A) they're going to keep interest rates low screwing up untold thousands of pension/ savings funds/trusts/annuities that wont grow because these jarheads think they can play God and bend the rules of economics or B) they'll start monetizing debt! Oh joy! Yes, by all means make it look like you're doing something Timmy Geithner. Just don't scare China and have them pull the rug out from under us... at least before I can get more of my capital out of these increasingly worthless green things and into something with VALUE.

movingtoaugusta 08/11/10 - 12:20 pm
Ok.......look at it this way

Ok.......look at it this way Ben.

What would you want your investors (China and Goldman Sacks) to do to help you? Make credit more available? Ease monetary restrictions? Promote growth in private sector business to increase capitalization of businesses and grow the GNP? Create a better working relationship between the lenders and the Fed? Reduce trade restrictions that drive up prices and reduce competition? Reduce overhead?

Now, just for a moment, imagine that you are China and Privately Owned small businesses in the United States are the Fed. There's your answer.

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