Fed Weighs Options as Europe Cuts Rates

The U.S. Federal Reserve Board is scheduled to meet in mid-December, and officials are looking at unconventional methods to spur a rebound in the U.S. economy.

European and other central banks continue to use interest rate cuts to head off recession, but the U.S. interest rate is already at a low.

The Bank of England and Sweden’s central bank reduced interest rates to 2 percent, and the European Central Bank cut rates to 2.5 percent.

In the United States, the rate is already at 1 percent, though it could be reduced further at the mid-December meeting.

Other options include cutting interest rates on mortgages, consumer borrowing, or Treasury bonds. The gap between Treasurys and other debt raises concerns among Fed officials, which is why the agency launched programs to narrow those spreads.

“Such programs are promising because they sidestep banks and primary dealers to provide liquidity directly to borrowers or investors in key credit markets,” Fed Chair Ben Bernanke said.

Meanwhile, the Fed could purchase Treasury bonds to drive down yields, but many experts do not see that as a viable option.

Bernanke has called upon lawmakers to aggressively aid home owners to help them avoid foreclosure.

Source: Wall Street Journal, Joellen Perry, Job Hilsenrath

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