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Here's What the Fed Will Do Next

NEW YORK (TheStreet) -- Federal Reserve officials are increasingly discussing the possibility of alternatives to the nation's current quantitative easing program as the latest Fed meeting minutes indicate that a wind back of QE is right around the corner.

The October minutes, which were published on Wednesday, are indicating that Fed policymakers may be starting to take more seriously the proposal to stimulate bank lending in the future through a potential cut by the Board of Governors to the interest rate paid on excess reserves. Such a move "could be worth considering at some stage," the minutes indicated.

Jan Hatzius, Goldman Sachs' New York-based chief economist, writes that if the central does decide to reduce the rate, an incremental reduction is more likely than a full cut to zero.

The interest rate the Fed pays on excess reserves currently sits at 25 basis points.

Must Read: [video] Fed Tapering Expected in Coming Months (Update 1)

"It does seem as though the probability of an IOER [Interest Rate on Excess Reserves] cut has increased somewhat," he stated in a morning note.

Talk of reducing the interest on excess reserves has been heating up recently.

Vice Chair Janet Yellen, tipped to become the next Fed Chair, said at her confirmation hearing last week that cutting the rate is "a possibility."

Minneapolis Fed President Kocherlakota has stated that cutting it is one route the Fed could take to provide further monetary stimulus.

-- Written by Andrea Tse

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