What More Can the Fed Do?

While Federal Reserve Chairman Ben Bernanke continues to insist that the American economy is on the road to recovery, however slowly, a multitude of other experts have begun sounding the horn, fearing an imminent double dip recession. For many American families struggling with high unemployment, skyrocketing prices on staples such as food and fuel, while trying to dig themselves out from a mountain of personal debt accumulated in recent decades, 2011 feels much the same as 2007, when the Great Recession began.

A partisan, re-election focused Congress seems all but unable to do anything real about the nation’s growing economic concerns. Given the snail’s pace on Capitol Hill and with U.S. families growing more desperate to keep their homes and jobs each day, this begs the question: what more can the Fed do? With interest rates already near zero, there appears to be little more that can be done to ease the cost of borrowing. So what else is available?

According to an article published yesterday by Reuters, “Expect Fed Chairman Ben Bernanke to use a speech at an annual central bank conference in Jackson Hole, Wyoming, next Friday to acknowledge his disappointment over the pace of growth, even downgrade his outlook, and explain which medicines left in the Fed’s cabinet are best suited to fortify the economy.”

But just what are these “medicines?”

  • Better Communication – This might sound silly, but it’s imperative. A majority of Americans do not understand the Wall Street derivative schemes and loan bundling maneuvers that brought them to this place of suffering. The only way to avoid repeating history is to know how you got there. The Fed could commit to its $2.8 trillion balance sheet, and do a better job of explaining why this is necessary.
  • Look at the Long-Term – As we near the end of the Great Recession’s fourth year, the Fed could pivot away from stopgap measures with an eye toward long term solvency.  According to the Reuters report, the body “could place downward pressure on medium to long-term interest rates, where mortgages are fixed and corporations borrow…by replacing its maturing securities with longer-term ones, or by actively exchanging shorter maturities with longer ones.”
  • Buy, Baby Buy – Not always a popular international move, or even a local one given that these purchases can devalue the dollar, but the Federal Reserve could always throw more money into the U.S. bond market.

Whatever the Central Bank decides, it is clear that holding the line on interest rates hasn’t been enough. The middle class is being crushed a leap year after the crisis began. It can’t afford to wait much longer for relief.


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