Federal Reserve Chairman Ben S. Bernanke said the central bank still has a range of options to further boost the economic recovery.
There are “different types of purchase programs that could include Treasuries, or could include Treasuries and mortgage- backed securities,” Bernanke said during congressional testimony today in response to questions from Senator Bob Corker, a Tennessee Republican.
“We could use our discount window for lending purposes,” Bernanke said, and the Fed could also “use communications to talk about our future plans.” Bernanke mentioned a final option, cutting the interest rate the Fed pays to banks on the reserves they hold at the Fed, currently 0.25 percent.
“A possibility that we have discussed in the past is cutting the interest rate on excess reserves,” he said. Bernanke did not say that any option was imminent and he said that each has costs and benefits.
“There’s a range of views about the efficacy of these programs,” he said. “There’s also questions about side effects and risks that may be associated with their use,” Bernanke said. “Therefore they should be not be used lightly.”
The Fed has held interest rates near zero since December 2008 and purchased $2.3 trillion of securities in two rounds of large-scale asset purchases known as quantitative easing. The Fed’s extension of Operation Twist to the end of 2012 will exchange $667 billion of short-term debt for longer-term securities.
Operation Twist has been “effective in easing financial conditions and promoting strength in the economy” and asset purchases known as quantitative easing have “also contributed to economic growth,” Bernanke said.
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