The Fed, Not Out of Ammo!

The Federal Reserve still has options, short of QE3, if it wants to encourage more lending. First, it can reduce to zero the rate of interest it pays banks on deposits held at the Fed. Second, it could sell short term Treasuries it holds and with the proceeds buy long term Treasuries. This would reduce long term rates without harming short term rates, as the Fed has pledged to keep the fed funds rate at near zero till mid ’13.

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