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Fed Expected To Keep Rates

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The Associated Press

Published: January 26, 2009

WASHINGTON - With the country stuck in a painful recession, the Federal Reserve is widely expected to keep its key interest rate at an all-time low this week and examine other unconventional ways to lift the economy.

Fed Chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in the housing, credit and financial markets that haven't been seen since the 1930s.

While Bernanke has pledged to do all he can to provide relief, President Barack Obama and Congress are racing ahead to enact an $825 billion package of increased government spending and tax cuts to revive the economy.

Against that backdrop, the Fed is all but certain to hold rates near zero and may offer greater insights into what other steps might be taken to ease the problems. The Federal Open Market Committee - the central bank's main policymaking group - opens a two-day meeting Tuesday to assess economic and financial conditions, review the effectiveness of programs already in place to deal with the trio of crises and examine new relief options going forward.

FED'S OPTIONS AND ACTIONS

Bolster Consumer Loan Availability
•A program expected to start next month will make up to $200 billion available to spur auto, student and credit card loans as well as loans to small businesses.

•To do that, the Fed will buy securities backed by those different types of consumer debt. The Fed also hopes that action will lower rates on those loans.

If successful, the program could be increased or expanded to include commercial mortgage-backed securities.

Buy Longer-Term Treasury Securities
•The committee will focus on the potential of the securities to improve conditions in the private credit markets, such as mortgage markets, Fed chief Ben Bernanke said earlier this month.

Moves Already Taken

•Buying mounds of companies' short-term debt called commercial paper

•Making cash loans to banks

•Buying mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae to help bolster the crippled housing market

Source: The Associated Press

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