When economists at Bank of America piped headlines from minutes of the Federal Reserve's June meeting down to the firm's trading floor, one sentence elicited an audible gasp of excitement: the Fed was exploring "new tools" to support growth.
Investors are now trying to cull hints about just what Fed Chairman Ben Bernanke, who showed a willingness to stretch the boundaries of conventional monetary policy during the financial crisis, might have up his sleeve.
Two principal options have emerged as eligible candidates: following the Bank of England's lead in some sort of "funding for lending" plan that favors banks that are actively making loans; lowering the rate the central bank pays financial institutions for parking their reserves at the Fed, currently at 0.25 percent.
The search for new tools is in part a response to the severe negative reaction the U.S. central bank received both at home and abroad from its second round of bond purchases.
The Fed says it is still considering a third bout of quantitative easing, or QE3, and some analysts expect recent weakness in the U.S. economy could prompt policymakers to launch such a program as early as September.
Read more: http://www.reuters.com/article/2012/07/24/us-usa-fed-tools-idUSBRE86N1G120120724
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