WASHINGTON — Federal Reserve policymakers are gathering to examine what other tools they can use to help ease a recession that has left millions of Americans out of work.
Fed Chairman Ben Bernanke and his colleague opened a two-day meeting Tuesday afternoon, where they also will take fresh stock of economic and financial conditions. They are all but certain to leave a key interest rate at a record low to try to brace the sinking economy.
“The economy is facing a lot of headwinds and 2009 is not off to a good start. The Fed and President Obama have their work cut out for them,” said Rebecca Braeu, economist at John Hancock Financial Services.
At its previous meeting in December, the Fed took the unprecedented action of slashing its key rate from 1 percent to a new, targeted range of between zero and 0.25 percent. Economists predict the Fed will leave rates at that range through the rest of this year.
Less clear is whether the Fed will unveil new actions to deal with a stubborn trio of crises — housing, credit and financial — that haven’t eased in a significant way despite radical steps by the central bank and a $700 billion financial bailout program run by the Treasury Department.
Options by the Fed include expanding a program aimed at bolstering the availability of consumer loans.
Under the program, which is expected to start in February, up to $200 billion will be made available to spur auto, student and credit card loans as well as loans to small businesses. To do that, the Fed will buy securities backed by those different types of consumer debt. The Fed also hopes that action will lower rates on those loans. The program could be expanded in size or scope to provide financing for other types of securities, such as those backed by commercial mortgages.
The Fed also could expand another program — started at the beginning of this year, under which it is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae to help bolster the crippled housing market. Mortgage rates have fallen in the wake of the program’s announcement late last year.
Another option is for the Fed to buy long-term Treasury securities.
The central bank has rolled out numerous programs since the credit and financial crises erupted in the summer of 2007. It is buying up mounds of companies’ short-term debt called commercial paper. It also is making cash loans to banks and has taken steps to bolster the mutual fund industry, investment firms and others.
William Dudley, who was promoted Tuesday to president of the Federal Reserve Bank of New York, is participating in the two-day Fed meeting. Unlike other regional Fed presidents, Dudley, 56, is a full-time voting member of the FOMC.
At the same time, President Barack Obama and Congress are racing to enact a $825 billion package of increased government spending and tax cuts to revive the economy, which has been in a recession since December 2007.
On Monday alone, tens of thousands of new layoffs were ordered by companies including Pfizer Inc., Caterpillar Inc. and Home Depot Inc. The economy lost 2.6 million jobs last year, the most since 1945. Economists predict another 2 million or more jobs will vanish this year.