The Federal Reserve is considering contingency plans to bolster its lending power, in case measures it has taken to rescue the troubled credit markets fail, the Wall Street Journalreported today.
One option being considered is to have the Treasury borrow more money than it needs to fund the government and keep the proceeds on deposit at the Federal Reserve, the report said.
Other options include issuing debt under the Federal Reserve's name instead of the Treasury's, and asking Congress for immediate authority for the Fed to pay interest on commercial bank reserves rather than waiting until a law enacted earlier allows it to in 2011, according to the newspaper.
"Evidently it's another attempt at seeking out non-policy based solutions to the credit crunch, which sits well with the FOMC minutes yesterday which noted that monetary policy alone was insufficient to stem the credit crisis," said Richard McGuire, fixed income strategist at RBC Capital Markets in London.
But the steps are not imminent as the Fed still has room on its balance sheet for additional lending, the report said, adding that the internal talks were part of a continuing effort to identify the Fed's options in case the credit crunch gets worse.
The Federal Reserve was not available immediately for comment.