Following yesterday’s WSJ column saying the Fed will do more to stimulate growth if the economy remains weak, the New York Times is running a similar article hinting that the discussion is between doing more now or doing it in September:
Internal discussions have swung in the direction of additional action.
A more interesting article comes from Reuters, which writes about how the Fed is exploring new tools. To me, the Fed needs to show some creativity. A new program would add to the mystique of the Fed and do more for confidence that QE, which is somewhat stale and predictable.
Reuters points to IOER and something like the BOE’s funding for lending program:
Though details are still sketchy as to how such a program might work, the Fed could tailor the collateral it accepts from primary dealers in a way that encourages them to lend to areas of the economy that need help.
In one possible approach, the Fed could accept longer-maturity collateral for loans only if the banks prove they will lend to, for example, small businesses, which have generally struggled more than big firms to borrow.
In another approach, the central bank could accept certain mortgages as collateral to stimulate demand for mortgage-backed securities and encourage lending to homebuyers having trouble getting loans.
