A few weeks ago, Tuesday’s Federal Reserve meeting was expected to be a non-event. Now it has become a summer cliffhanger.
With the U.S. economy clearly slowing, job creation still abysmally weak and fear of deflation a hot topic in financial markets, the Fed has to decide whether to launch new programs to support the recovery.
Programs, like what? There’s no point in the Fed cutting its benchmark short-term interest rate, which already is near zero. So analysts who expect the central bank to act figure that policymakers will focus on trying to pull long-term interest rates down further.
The Fed could do so by returning to so-called quantitative easing, or QE. One option under QE would be for the Fed to resume buying Treasury bonds and/or mortgage-backed bonds for its own account, adding to the $1.7 trillion in securities it bought from January 2009 to March of this year.
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