Federal Reserve eyes possible next steps

FEDERAL RESERVE EYES POSSIBLE NEXT STEPS…. When it comes to preventing another economic downturn, President Obama wants to act, but needs Congress. Congress can act, but doesn’t want to. The private sector would like to act, but is struggling with weak consumer demand.

And that leaves the Fed.

Federal Reserve officials, increasingly concerned over signs the economic recovery is faltering, are considering new steps to bolster growth.

With Congress tied in political knots over whether to take further action to boost the economy, Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns — massive infusions of cash, such as those undertaken during the depths of the financial crisis — but would reconsider if conditions worsen.

The president of the Federal Reserve Bank of St. Louis told the Post that there’s “plenty more” Fed officials could do “if we had to.”

There are some interesting angles to all of this, but it’s worth emphasizing that, at least for now, the Fed isn’t close to the “if we had to” moment. The article notes that officials expect the already-sluggish recovery to continue into 2011, and that the possible intervening steps “are not imminent.”

Those of us who look at the status quo as being not nearly good enough, and want to see prompt actions to boost the economy in the short term, apparently don’t have too many allies among Federal Reserve officials.

But I suppose there’s a little comfort in knowing that the Fed had additional options, and that preliminary discussions are underway. Some of the possible steps seem largely cosmetic, such as strengthening the language of some reports to signal to investors that interest rates aren’t going up, while others are at least somewhat more substantive, including the possibility of a major new asset-purchase program.

“I think we do have a variety of tools available, and we shouldn’t rule any tool out,” Eric Rosengren, president of the Federal Reserve Bank of Boston, told the Post. “If we’re uncomfortable with how long it’s going to take us to reach either element of our dual mandate [of maximum employment and stable prices], we’ll have to make some adjustments to policy.”

The sooner, the better.