Federal Reserve Chairman Ben Bernanke “might have something up his sleeve next week” when he delivers his semi-annual monetary policy report to Congress: he could hint at a “funding for lending” program similar to what the Bank of England announced last month, according to one long-time Fed watcher.
If the Fed wants to ease again, the first lever they pull might not be more quantitative easing where the Fed buys government bonds to help keep interest rates low in the hope that low rates will foster lending and economic growth, says Decision Economics economist Cary Leahey.
Bernanke is scheduled to testify before the Senate Banking Committee on Tuesday and in front of the House Financial Services Committee on Wednesday.
They might try something else — perhaps a program not unlike the Bank of England ‘funding for lending’ scheme which explicitly ties increases in bank lending to lower funding costs from the central bank.
This possibility first entered investors’ imagination following a June press conference with Bernanke, in which he seemed remarkably open to the prospect of adopting a similar measure.