Fed planning for economic recovery

WASHINGTON, Feb. 8 (UPI) -- The U.S. Federal Reserve bank is likely to use a variety of options to slow the economy when the recovery is stronger, bank officials said.

New York Fed President William Dudely said the bank could "raise the interest rates paid on excess reserves," which are now set at 0.25 percent, The Wall Street Journal reported Monday.

By doing so, the central bank would be encouraging banks to leave money in their reserve accounts, which would take that much more money out of circulation. In turn, this would reduce money available for borrowing and ward off inflation, which can occur when there is too much money available.

Fed Chairman Ben Bernanke is likely to begin outlining the bank's approach soon even for steps many months away to allow financial firms to plan their reactions, the Journal said.

Some policy makers favor raising bank-to-bank lending rates in a less predicable nature than the policy in 2004-2006 in which the Fed raised interest rates 17 times after 17 consecutive policy meetings.

"Interest rates are difficult to forecast in the most settled or normal times, and their path is especially uncertain in the current circumstances," said Fed Vice Chairman Donald Kohn in January.