Bernanke outlines Fed options

JACKSON HOLE, Wyo., Aug. 27 (UPI) -- U.S. Federal Reserve Chairman Ben Bernanke said Friday the central bank would consider several options for priming the stalled economic recovery.

Bernanke said the Federal Open Market Committee was open to an expansion of its quantitative purchasing programs, which is currently set as a reinvestment of funds earned by the Fed's nearly $2 trillion portfolio.

The current strategy keeps the Fed's holdings from shrinking, Bernanke noted at the annual central bank retreat in Jackson Hole, Wyo. At this point, however, Bernanke said, "We do not rule out changing the reinvestment strategy if circumstances warrant."

Bernanke outlined further steps for economic stimulation the Fed could take, including lowering the interest rates paid on reserve accounts at the bank, which would prompt banks to put their reserves to better use. "On the margin, a reduction in the … rate would provide banks with an incentive to increase their lending to non-financial borrowers or to participate in short-term money markets, reducing short-term interest rates further," he said.

Bernanke also said policy makers could chose to alter their public statements, specifically changing the coded message of leaving bank-to-bank lending rates low "for an extended period" to a new phrase that would signal to lenders that rates would remain low "for a longer period than is currently priced in markets."

By signaling rates would stay low for a longer duration, the central bank would, in effect, give banks confidence that they could keep the flow of credit going.

As a more radical step, the bank could also raise its inflation rate target, a move suggested by other economists, Bernanke said. However, "I see no support for this option on the FOMC," he said.