The much-anticipated speech by Federal Reserve Chairman Ben Bernanke on August 26 was notable not so much for monetary policy insight – but because he emphasized that it is now Congress and the President's turn to step up.
The Fed's active role in injecting liquidity and anchoring rates to fend off deflationary pressures, lower cost of funds and stimulate lending has been well documented. The nearly three-year-long adoption of a zero interest rate policy, expansion ofthe Fed's balance sheet to $2.7 trillion, and the recent pledge to keep the federal funds overnight rate anchored at zero until at least mid-2013, have many questioning whether the Fed is out of tools, should economic recovery further stall.
Significant options do remain available for the Fed, and here we discuss some of the possibilities.
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