Can the Fed Save the Economy?

With all the attention focused on what Congress can do to pass legislation to help end the slowdown in economic recovery, the Federal Reserve may be the one to actually have an impact. The central bank is considering taking small steps to boost growth. "If the economic situation changes, policy should react," one Fed official told The Washington Post. "You shouldn't sit on your hands...I think there's plenty more we could do if we had to." One approach would be to make it clear that the Fed plans on leaving interest rates near zero for a long time to come. Another move might involve lowering the interest rate paid to banks for keeping extra cash with the Fed. Alternatively, the Fed could purchase new mortgage securities to replace those being paid off as people benefit from the already-low interest rates for refinancing.