Fed weighs options to revive economy

WASHINGTON -- As they prepare to open a two-day meeting Tuesday, Federal Reserve policymakers are weighing whether to launch new programs or expand existing ones to spur lending, get Americans spending again and lift the country out of recession.

Any decisions would come Wednesday.

To try to revive the economy, Fed chairman Ben Bernanke and his colleagues already have slashed a key lending rate to banks to a record low. Economists predict the Fed will leave that rate near zero at this week's meeting and probably through the rest of the year.

The financial crisis has thrown millions of Americans out of work and forced a growing number of banks out of business.

The Fed's efforts have helped ease some credit and financial stresses. But those markets are still far from operating normally, Bernanke and other Fed officials have acknowledged.

"The world is suffering through the worst financial crisis since the 1930s," Bernanke said in a speech last week. "Until we stabilize the financial system, a sustainable economic recovery will remain out of reach."

Bernanke and his colleagues have pledged to use "all available tools" to battle the crisis and revive the economy. One option advanced at its last meeting in January is buying long-term Treasury securities. Doing so would help further drive down mortgage rates and help the crippled housing market, economists said.

Even as the Fed pledges to use all tools to battle the crisis, it's mindful of the risks of pumping more money into the economy, bailing out financial institutions and leaving a key rate near zero for too long. Those steps could ignite inflation, put more taxpayers' money in danger and encourage companies to make high-stake gambles.

Against that backdrop, some economists say the Fed won't announce any new policy actions Wednesday but instead will hold them in reserve should the economy or financial markets take a turn for the worse.

"The Fed is going to want to keep some of its powder dry," said Richard Yamarone, economist at Argus Research. "They are going to wait to see the whites of the eyes of doom and gloom before they roll out a new program or expand other ones."

Much is riding on a new program, created by the Fed and the Treasury Department, to spur lending for auto, education, credit card and other consumer loans. The Fed later this month will start providing up to $200 billion in financing to investors to buy up such debt.

The program could generate up to $1 trillion of lending for businesses and households, the government says. It will be expanded to include commercial real estate, though that component won't be part of the initial rollout.