the Fed

If the Fed had not taken this action, the world would have been at risk of a deep recession, if not of something even worse.

Here's what happened: the Fed decided to squeeze inflation out of the system through a monetary contraction.

On the face of it there is much to be said for the Fed's and the Bank's approach.

What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble.

Some analysts question how much further the stock market can rise if the Fed's actions do not lift the economy out of its sluggishness.

And although the Fed is still going to have more tools available to it, it is critical that the other branches of government step up.

That background might predispose the new ECB president to the sort of monetary-policy activism that the Fed has gone in for.

Equities nearly halved their losses after the Fed stuck with its ultra-loose monetary policy and said the economy was gaining traction.

"Most likely the Fed will look to the interest paid on excess reserves as the indicator of the stance of interest rate policy, " he said.

The Federal Reserve System , or the Fed as it is usually called, is the fiscal agent of the United States .

He said the Fed had the best technical expertise to be a systemic risk regulator.

So far, though, there hasn't appeared to be a great sense of urgency on the Fed's part.

For all that, few investors are abandoning their longer-term bullish view on gold. The reason? It is all about the Fed.

Notably, he said the Fed's base-case forecast of strengthening growth next year was premised in part on markets continuing to heal.

The Fed isn't the only central bank that seems to be putting inflation worries on the back burner while fighting slow growth.

The Fed knows there is a risk that inflation will spiral out of control and is trying to anchor inflation expectations through talk.

But by the time the Fed lowered rates again at the end of that month, its move was seen by investors as a sign of desperation.

They comprise two-thirds of the bank holding company assets in the United States, the Fed said in a fact sheet.

Most analysts and traders expect little drama from the Fed, but many do expect at least some fiddling around the margins.

"If someone thinks Hank Paulson could have made the Fed save Lehman Brothers, the answer is, 'No way, ' " he said.

On balance, the chances are that, over the next few months at least, the Fed will worry more about inflation than about slower growth.

The Fed is now trying to push down long-term interest rates by buying mortgage-backed and perhaps Treasury securities.

Yet the Fed's credibility could be at stake if it allowed itself to be bullied into a late U-turn that is not clearly justified by the data.

One possibility would be to launch the Fed's first move with a larger purchase and scale back the increments after that, he said.

What traders inferred yesterday was that to the Fed, these absolute levels do not matter, only the relative pace.

This was a radical departure, since the Fed had never seen the stock market as part of its job description.

Paulson said the loans would likely be nonrecourse, meaning investors wouldn't have to pay the Fed back if the underlying borrower defaults.

"I would like to see a more globally coordinated action to support the Fed, " Dallara told Reuters ahead of the World Economic Forum.

Committee members have said the questions asked by the Fed in advance of the meeting can give clues to the Fed's thinking.

But even if the Fed were to end up choosing restraint, it would not add up to a new Plaza arrangement.

It seems that the Fed might have painted itself into a corner.

He said it was "possible" that the Fed could take on some sort of systemic risk duties.

In other words, if you own two-year Treasurys the Fed just guaranteed that you're not going to get sideswiped by an increase in rates.

The Fed could hint Tuesday that it is ready to start new programs to encourage lending even if it doesn't implement them immediately.

Since the Fed can basically print money, investors would be wise to respect its ability to cause inflation if it desires.

As a result, he said, the Fed has actually turned even more gloomy on jobs in the last couple of months.

If the Fed keeps money flowing, it's better to hold other assets, but if it shuts off the spigot, being in cash becomes less painful.

First, markets seem to have been straightforwardly disappointed by the Fed's action.

But as the Fed's second round of "quantitative easing" (QE) draws to an end this month, he gave no hint a third round was in the offing.

In trying to prevent financial-market calamity, the Fed may find itself pushed by Wall Street to leave interest rates too low for too long.

Well, since the Fed is trying to lie to the American people, I imagine that it certainly would be acceptable.

After all, as Mr. Bernanke has repeatedly said, the Fed can only do so much.

However, with Lehman, the Fed believed the system was better prepared for the shock and wanted to show it would not always prop up brokers.

That he was moved to act just a week before one will raise the suspicion that the Fed knows something that markets don't.

In an attempt to create a gotcha moment, he waved a copy of a newspaper bearing the headline "Inflation Worries Spread" at the Fed chairman.

Helpfully, China has a massive mountain of money available to it that the Fed and Bank of Japan did not have.

Barbara Hagenbaugh, a spokeswoman for the Federal Reserve, said the Fed had not received an application required for such an acquisition.

The chairman of the Fed, Alan Greenspan, told Congress in February 2005 that this was a "conundrum" .

Hence the attention paid to his recent speech at Jackson Hole, which laid out, with great confidence, what further steps the Fed could take.

Bernanke said the Fed is "prepared to take further policy actions as needed" to keep the recovery on track.

Investors are also watching to see if the Fed discusses the sovereign debt crisis in the euro zone and its impact on the U. S. economy.

Those of a more bullish persuasion might argue that the Fed opened the door to more monetary stimulus by its actions last week.

Stocks also pulled back, as the Fed did not suggest in its statement that it sees any notable recovery any time soon.

Instead, he began the press conference by reading out a summary of the Fed's statement and its economic projections.

If you think the Fed is going to have trouble walking away from quantitative easing, you aren't alone.

The growing conviction in the markets that the Fed might be preparing for a pause sent the dollar into a tailspin this week.

The reality is that the Fed simply doesn't at this point seem to have the right set of tools to fix what ails the U.

A miscalculation would produce big inflation only if the Fed failed to see and react to it.

The last statement of the year from the Fed acknowledged recent weakness in the economy but continued to flag up concerns about inflation.

None of this is to say that the Fed should jack up rates without warning, or to extremely high levels.

It does nothing but condone the arrogance of the Fed in its refusal to tell us where the $2 trillion has gone.

The Fed chief also said he expected the bank stress tests would help restore confidence in the US financial sector.

If it does, the Fed might be forced to raise interest rates by more than is now forecast.

Traders said the markets were pricing in a move to ease -monetary policy further at the Fed's rate-setting meeting on Tuesday.

Recently, the assets held by the Fed have crept up to $2. 2 trillion, the highest since the depths of the financial crisis a year ago.

That's likely to include requiring the Fed in an accounting sense to see a significant accounting loss.

For almost a year now, the Fed's been dropping interest rates, trying to pump money into the banking industry.

The bank, jealous of its independence from government, will be loth to go further and buy public debt, as the Fed plans to.

Others dumping precious metals lately doubt the Fed will take much more aggressive action to help the economy, at least for now.

And so far, not even the combined official powers of the Fed and Treasury have been able to stop the cascading disasters.

Many homeowners, though they do not know it, will be sending their monthly mortgage payments to the Fed.

But the financial effects can be deleterious, which seems to be the unintended consequences of the Fed's new policy.

Preventing such an outcome appears to have been a major objective of the Fed's actions.

The last paragraph of the statement said the Fed was ready to employ 'the range of policy tools available. '

In its statement at the conclusion of the meeting, the Fed said the recovery "has slowed in recent months. "

To see what I'm talking about, let's ask what policies the Fed actually should be pursuing right now.

Donald Kohn, the Fed's vice chairman, was one of the strongest proponents of the old don't-pop-bubbles view.

While the Bank of Japan did not cut rates, the Fed statement said that the bank supported the actions.

And he made clear that, together with the Treasury, the Fed was "carefully" monitoring currency markets.

To see why, note that the Fed has taken on implicit fiscal responsibilities as part of its response to the crisis.

Neither side was prepared to cope with an economy that went off the rails despite the Fed's best efforts.

The bank charter would not allow it to flood the economy with money the way the Fed has done through its huge purchases of securities.

Of course, the Fed is still likely a year or more away from implementing an exit strategy, but even that's cold comfort.

For much of his career he said the Fed should let the money supply grow at a fixed rate.

Today the Fed is trying to reach out to Americans through ways like this video on its website.

"The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding, " he said.

The main argument seems to be that Congressional oversight over the Fed is government interference in the free market.

But the latest spell of quantitative easing comes to an end this month and the Fed has made clear it has no desire to add to it.

It was meant to be reassuring, but it mostly served to emphasise how much the Fed has become entangled in fiscal and financial policy.

Becoming a bank holding company would have subjected Lehman, which had been an independent investment bank, to regulation by the Fed.

But the latest spell of quantitative easing comes to an end this month and the Fed has made clear it has no desire to add to it.

It was meant to be reassuring, but it mostly served to emphasise how much the Fed has become entangled in fiscal and financial policy.

Becoming a bank holding company would have subjected Lehman, which had been an independent investment bank, to regulation by the Fed.

But I suspect the Fed will not lean too heavily against the wind, should inflationary pressures emerge.

The Fed also disclosed it had discussed other policy options and was "prepared to employ these tools as appropriate" .

Ultimately, the Fed's moves will depend on how incoming data supports the bank's assertion that growth is about to bloom again.

The Fed did not provide conditions for how the money was to be used.

Analysts said the soft price data implied the Fed might have to do more, not less, to drive the economy.

The Congressional sponsors discount how much the Fed has done to reduce risks.

By the end of the trading day, investors will likely know exactly how much the Fed plans to spend to stimulate the economy.

Yet, alas, the Fed seems to have decided to fall asleep and the administration has lost the initiative.

A bank lobbyist said the Fed's approach was a "refreshing" change from that of Mr Feinberg.

The Fed's classic mistake that led to the Great Depression was that it tightened monetary policy when it should have eased.

However, he said the Fed is unlikely to repeat in the near term the extensive stress-tests done on major U. S. banks earlier this year.

Yet, for all that, Mr Mishkin stuck to the Fed's line that it should not have tried to restrain house prices with higher interest rates.

Only in the last few days has the market rally trailed off amid questions about exactly how much the Fed will spend to buy bonds.

Though the Fed does not expect deflation, last month it did say that "inflation could persist for a time below" optimal levels.

But the most obvious effect so far of the prospect of more quantitative easing by the Fed has been a decline in the U. S. dollar.

But Friedman would likely have objected strongly to any attempt by the Fed to increase the money supply in the name of fighting a recession.

The other major asset possessed by the Fed is the total of U. S. government securities it has purchased and amassed over the decades.

With Treasurys yielding only 3%, it's not clear how much more demand the Fed will spur by getting them down to, say, 2. 5%.

Everyone seems to be enjoying fighting the Fed these days, but for China it could be something of an own goal.

The second wonders how much worse things have to get before the Fed acts and whether, even if it does, the dose will be too timid.

The ECB and the Bank of England do all three of these things. So far the Fed has got along without them.

"The key investment question over the next two years is whether the Fed's policy will lead to excessive inflation, " he said.

And yet what continues to drive much of the criticism of Greenspan is not so much his record at the Fed but his recent political commentary.

It was the first time since the Great Depression that the Fed had made a loan like this to an entity other than a bank.

YESTERDAY, the Fed closed a two-day meeting with a statement that seems to have disappointed everyone.

The Fed could consider re-opening its program of buying Treasury bonds or other securities to try to increase the money supply.

Bernanke has said the Fed would like to see inflation closer to 2 percent to show the economy is making a solid recovery.

While this return outing is not something the Fed wants to do, it has gradually been backed into a corner.

None of these measures would have been possible without the Fed's unparalleled authority derived from its role as bank supervisors.

Panel chairman Phil Angelides said there appeared to be "a conscious policy decision" by the Fed not to rescue Lehman.

Before his death last year, he said that he had been making the point privately at the Fed as long ago as 2000.

But if the Fed wants to surprise the markets again, a more radical idea would be to fiddle with its own mandate.

That said, the Fed cannot be certain that paying interest will work as planned, so it would also like to be able to soak up some reserves.

The Fed said the loan was expected to be repaid by the proceeds of selling AIG operating companies.

In this situation, the Fed should absolutely be trying to lift economic growth and employment by reducing the cost of borrowing money.

The Fed said the financial market turmoil will likely continue to restrain spending, partly due to the tight credit market.

These puts may or may not be real, but there is no doubt that the Fed has the power to create incentives for greater risk taking.

Galy said the trend may continue beyond the Fed meeting as well, as investors look to lock in profits ahead of year end.

"If payrolls are poor, then trepidations may increase over the possibility of the Fed engaging in more quantitative easing, " she said.

"The doubling of the Fed's balance sheet has had no discernible effect on long-run inflation expectations, " he said.

A few believe that inflation could flare up and force the Fed to begin boosting rates near the end of this year.

Economists said the data underpinned the case for the Fed to lower interest rates sharply at a meeting next week.

A visible strengthening in commodity prices is also likely to put pressure on the Fed to slow down the money printer .

This might be the hardest test for Chairman Ben S. Bernanke and the Fed since the end of the financial crisis.

range for the Federal Reserve's key policy rate, suggesting investors expect the Fed to be on hold at least that long.

At least as important is to communicate that the Fed will not shrink from doing more (what some call "operation shout" ).

But others said the Fed had introduced uncertainty into the market, which would continue to impact investor risk appetite and prices.

Bernanke said the Fed had to launch the bond-buying program, given the outlook for weak growth and persistently high unemployment.

Wait a minute. . . I thought the Subprime problem was neatly contained in a nice little box of risk that the Fed had put it in?

In October 2008, amid the post-Lehman Brothers market turmoil, the Fed began to pay interest to banks that keep money on reserve with it.

Mr Barro, for his part, seems to blame the Fed for holding down interest rates and facilitating government borrowing.

To be sure, doing so might have been hard for the Fed's hawks to swallow.

But it is impossible to generate such a signal at the moment thanks to the Fed's policy of near-zero short rates.

In its statement, the Fed said that the economic outlook has weakened further since the committee's last meeting in late October. The U.

Bernanke said the debt crisis in Europe, which has rattled Wall Street, played a role in the Fed's "somewhat weaker outlook. "

There was no indication of the size of possible asset purchases by the Fed.

The Fed has the ability to produce as many dollars as it wishes, potentially placing limitless pressure on China to let the yuan appreciate.

GE, one of the nation's largest corporations, turned to the Fed for short-term loans, known as commercial paper, when that market dried up.

On a decision this momentous , for the Fed , the US and the world economy, the meeting may take on a life of its own .

The Fed chairman said the current episode of globalisation had many similarities with past phases of international integration.

Put differently, by the time risk-taking and asset price inflation again take off, it may be too late for the Fed to turn it back.

There was no change in glucose response between the fed and fasting state.

Now that the economy is contracting, the Fed won't be able to funnel the excess liquidity into equities or other similar assets.

The Fed meets next week and details of any bond-buying program are expected to be announced when the meeting wraps up Nov.

The Fed resolved to make no changes to its $300bn Treasury purchase plan, in part because prospects for the economy seemed to be improving.

Some suspect the Fed will stop short of any indication that another round of quantitative easing might be on the table.

And the decision could be reversed relatively easily by the Fed if the economy improves over the course of the next few months.

As the Fed controls the short-term interest rate, such a strategy can avoid the pain of paying high interest rate by the Federal government.

The immediate market response was to treat this as a signal that the Fed's "bias" towards tightening had been removed.

The scale of the TSLF raises concerns that the Fed, in its attempt to reduce liquidity risk, is taking on too much credit risk.

This marks a second round of bond buying by the Fed in an effort to drive down interest rates, a policy known as quantitative easing.

Bear's gross mortgage exposure is still likely to be well over $10 billion after the Fed guarantees the least liquid stuff.

After the minutes were released on Tuesday, he said it was clear that the Fed was not done tightening.

In search of a permanent way round the problem , the Fed has asked Congress to let it pay interest on bank reserves .

The point is not that the Fed was wrong in its determination to stem the panic following the Lehman bust.

If the Fed put the ball back in the government's court, politicians may feel added impetus to deal with thorny economic issues.

I say it's too close to call but will admit that there are signs that the Fed is gaining the upper hand.

The Fed and its peers had clean balance sheets, with basically nothing but Treasury bills on the asset side.

The Fed may be able to justify a more forceful attack on unemployment by tweaking, rather than replacing, its current framework.

"The Fed's Treasury purchases weighed on the dollar but failed to reverse the yield rally, " he said.

He worries that the Fed has long underestimated the extent to which changes in financial structure complicate the task of monetary policy.

Like the Fed, the Bank of England has been pursuing an aggressive QE programme.

This is possible only by increasing the money supply and the balance sheet of the Fed itself, a practice that sooner or later must blow up.

To encourage banks to lend the money, the Fed can lower the rate if it wants, though not by much.

Regulators, led by the Fed, are trying to translate the law into detailed rules.

The Fed decision on Wednesday is not the only significant information bond investors are waiting for this week.

The Fed went on to say that although the economic data has improved, it is still 'insufficient to bring down unemployment'.

Economists at Goldman Sachs said it was "crystal clear" the Fed did not anticipate raising rates in the near future.

The falls in American share prices have been so sustained that the Fed felt it had to do something dramatic to change the pessimistic mood.

The only remaining option is to have the Fed create new money out of thin air.

'I wouldn't expect at its November meeting the Fed is going to roll out some additional package, ' he said.

In a speech, Merkel sharply criticized the recent liquidity policy of the Fed, calling for a return to what she called 'sensibility.

Also, it is not simply a question of the Fed declining to bail out financial speculators who took on excessive risk.

There's no doubt that inflation is caused by too much money chasing too few goods, and the Fed has certainly created a ton of money.

But now may also be a sensible time to grant the Fed additional tools to help its balance-sheet contract once the economy has recovered.

Eventually Mr Evans would have the Fed, which has no official inflation target, revert to focusing on the inflation rate.

For more than 20 years, Ron Paul, the Texan Republican, has been trying to pass a bill that would audit the Fed's monetary policy decisions.

If you think extended period means a few more months, or even six months before the Fed raises rates, think again.

And the Fed may have concluded that American inflation is less sensitive than it was to changes in the rate of unemployment.

"Just as Austrian theory suggests, " wrote Woods, "the Fed's mischief was responsible for the Great Depression. "

Like the Fed, central banks in the U. K. and Japan already are buying the debt of their respective governments.

The Fed mightn't be ready to set a particular yield level for particular Treasury notes.

The Fed chairman said demand for housing "seems to have weakened further. "

At its peak, the Fed was one of the biggest holders of commercial paper -- $350 billion, or 20% of the market.

The Fed wants to err on the side of caution to avoid a repeat of 1937 when a "premature tightening" led to a sharp downturn.

In his testimony, Mr Geithner said the Fed was "best positioned" to regulate systemic risk.

Were it not for the debt-induced financial market strains, the Fed might have felt differently about when to raise rates.

Richard Shelby, senior Republican on the committee, said the proposals presented a "grossly inflated view of the Fed's expertise" .

Currently the market does not know what rate of inflation the Fed is targeting, or the timeframe in which it intends to get there.

With inflation expected to stay below the Fed's 2 percent target in the medium term, the case is clear for more aggressive easing, he said.

That began after the Fed announced in September that it would buy long-dated Treasuries in a move known as Operation Twist.

If you believed in real business cycle theory, the Fed's policies should have had no real effect at all.

The Fed said in minutes published this week that it expected a moderate pick-up in growth in coming quarters.

As Ken Rogoff of Harvard University puts it, the Fed is "taking advantage of a respite in the financial crisis to shore up the dollar" .

In preparing for this lecture, I began to realize just how obvious a choice Bernanke was for chairman of the Fed.

Less than $40 billion a year ago, the excess reserve deposits held by the Fed have ballooned to $860 billion.

if the fed continued to warn about deflation that is growing at a brisk pace , the first bank would not take the unwise move.

The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program.

As the bank's primary regulator, the Fed can force out executives if the agency concludes they are behaving irresponsibly. Mr.

The Fed said the decline was concentrated in commercial paper, loans and commercial mortgage borrowing.

During the Great Panic of our time, the Fed and its counterparts did whatever it took to prevent depression and deflation.

The decision to launch such a large twist means that the Fed has almost no scope to increase the size of the policy further.

A run-up in commodity prices had raised inflation fears, triggering talk about an exit from the Fed's support of historically low rates.

There are no convincing arguments that it is in the best interests of the American people for anything the Fed does to be off limits.

The Fed's probably assumed lower long-term rates would raise asset value, which clearly did not happen except for Treasury bonds.

The greatest surprise in the statement was the Fed's decision not to signal further asset purchases once the initial programme ends.

The most obvious way for the Fed to help is to lower the federal funds rate target, which sets the cost of borrowing, from its level of 2%.

At some point when the economy recovers from recession, the Fed is going to have to withdraw this money and raise interest rates.

The Fed also said it stood ready to increase its plans for hefty purchases of mortgage debt.

But the Fed's forecasts of inflation were too low in this period, which suggests that such a modified rule is not a very good one.

Mr Shelby said the Fed chairman "fiddled while our markets burned" and "greatly exacerbated the crisis" .

'It's not the beginning of the Fed tightening, it's the end of the Fed easing, ' Mr. Kantor says.

Indeed, the Fed was able to move earlier than Congress and the size of its interventions dwarfed the stimulus.

For the purchase of these "assets" , the Fed is only switched on banknote printing machine.

In the past week, two private-sector groups emphatically said the Fed should be the sole financial stability regulator.

The Fed chairman told lawmakers he expects it to be a 'substantial amount, ' and he compared the process to an art auction.

In its latest policy meeting, the Fed repeated its expectation that interest rates will remain close to zero for "an extended period" .

Historically, presidents have had little influence over short-term economic growth, and certainly less than the Fed's chairmen.

The Fed needs to explain why it could not wait a week but, on balance, aggressive rate cuts are a risk worth running.

In late January, the Fed passed China as the single largest holder of Treasury debt, a little more than two years after China passed Japan.

Unlike other central banks, the Fed more than a year ago began lowering interest rates, which punished the dollar.

As for risks to inflation, the Fed's favourite indicator of expectations suggests that the wind is set fair.

While we have known for months that the Fed was targeting asset prices with QE, it really is shocking to hear it enunciated so clearly.

Mr. Bernanke said the Fed can't manage the economy and preserve financial stability without bank oversight.

He is likely to use the appearances to explain how the Fed expects to undo some of the extraordinary steps it has taken.

When the economy recovers (and the recovery is likely to be fragile), the Fed will be very reluctant to increase short-term rates.

But as the economy recovers and interest rates rise, the Fed can increase the interest rate it pays banks to hold reserves as well.

Rate-setting committees at the Fed and the Bank of England, by contrast, vote on decisions and publish minutes showing votes.

But his main message was that the Fed will not move to support the economy until it is sure inflation is tamed.

Plosser, a noted inflation hawk, was one of the officials who dissented at the Fed's August 9 meeting.

We do see the Fed action post the Bear Sterns fall out as being significant in trying to stabilise the financial system.

David Semmens, US economist at Standard Chartered, said the Fed minutes delivered a clear message.

Central bankers from Israel to Brazil spoke up in favour of discouraging bubbles and questioned the Fed's approach.

But then the NASDAQ index fell 22% over the following year, although the Fed continued to cut interest rates aggressively.

The Obama plan creates such a council, but makes the Fed the first among equals and acknowledges, as the Treasury secretary, Timothy F.

Even now, over a year after leaving the Fed, his comments have found an eager audience.

The general policy tools used by The Fed. to regulate currency supply include: statutory reserve, discount rate and open market business.