Fed Running Out Of Options

The Fed has already cut its target for the overnight interest rate, traditionally its key tool for influencing the economy, almost to zero. Last year, research by economist Glenn D. Rudebusch at the San Francisco Federal Reserve Bank concluded that the recession was so severe that the only way the Fed could provide the economy with the same degree of support as it has in past slumps was to cut that target to a negative 5 percent. That's impossible, of course, since interest rates cannot fall below zero — the so-called zero bound for monetary policy.