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6 Tools Left in Bernanke's Toolbox as QE2 Ends

  • "I don't think this is going to help out," says Johnson. "By law, the Fed probably can't do it."
  • "It's a nice thing for the long term" but setting a target comes with many nuances, says Blitz.
  • 5. Define what the Fed means by "extended period"

    Reporters at the last Federal Open Market Committee meeting pushed Bernanke to pinpoint exactly how long the Fed intends to keep the federal funds rate near zero. It seems unlikely that Bernanke will hash out the language here further given that he already said the timeline depends on how the economy, inflation and unemployment evolve. "...The reason we use terms like 'extended period' is not be intentionally opaque," said Bernanke. "The reason is that we don't know exactly how long."

    Bernanke appeased the public somewhat by revealing the Fed would not take action for at least the next two or three FOMC meetings.

    Analysts seem to sympathize with Bernanke: "The Fed wants to leave itself some leeway and not put itself in a box," said Morningstar's Robert Johnson. After all, "they don't want people to say, you're a liar and a cheat."

    6. Take a bold stance

    We all know the Fed is in a pickle. It can try to fiddle with the fundamentals, but if confidence in America's economy doesn't budge, a downturn becomes a self-fulfilling prophecy.

    Wells Capital's James Paulsen proposes a raise in the interest rate to 50 basis points.

    The Fed's actions are hurting the American psyche, he explains. Raising the interest rate would signal to the markets "hey, we want you to know that the economy is sustaining in its recovery."

    -- Written by Chao Deng in New York.

    >To contact the writer of this article, click here: Chao Deng.

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