This morning, members of the Federal Open Market Committee are meeting to discuss the country’s monetary policy. They are expected to release a report at 2:15
“„One substantive option on the table — and which has the highest likelihood of actually being taken, though it is no sure thing — would be to state that the Fed will maintain the current size of its balance sheet, $2.3 trillion, by buying new assets as the mortgage backed securities in its portfolio mature. That would have only a moderate impact in terms of increasing the money supply, but would be a signal that the Fed has entered a more dovish mode.
“„Similarly, the Fed could strengthen its statement that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” One fairly significant change would be to state how long an “extended period” is, such as two or three years. Another aggressive change would be to state that low interest rates are likely to be warranted until certain economic conditions are met, such at an 8 percent unemployment rate and core inflation above 2 percent.
“„Another possibility would be to cut the interest rate on excess reserves that banks park at the central bank, currently 0.25 percent, to zero.