Fed Nearly Exhausts Options

With rates at 0%, politically unsavory buying program only tool left
By Kevin Spak,  Newser Staff
Posted Mar 18, 2009 8:53 AM CDT
Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Wednesday, Feb. 25, 2009, before the House Financial Services Committee.   (AP Photo/Lawrence Jackson)
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(Newser) – The Fed is almost sure to leave the federal funds rate alone today, mostly because, at about 0%, it literally can’t go any lower. So with deflation still looming, what’s Ben Bernanke to do? One Goldman Sachs analyst says the Fed needs to shave the equivalent of 8 more points off the target rate by 2010. Since Bernanke can’t cut, the analyst suggests a shopping spree, the Wall Street Journal reports.

Buying private-sector assets is one way to pump cash into the system. But to have that 8-point impact, the Fed would have to spend a whopping $10 trillion—a prospect unlikely to fly in Washington. Walking the knife's edge between inflation and deflation, Bernanke will probably do the next best thing: cross his fingers, and pray he’s already done enough.