California Business Minute™

Hi, I am Tim Johnson and welcome to the California Business Minute.

The Federal Open Market Committee -- the central bank's main policymaking group --
opens a two-day meeting Tuesday to assess the nation’s economic and financial
conditions, review the effectiveness of programs already in place to deal with the
housing industry, credit markets and financial sector and to examine new options.

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.
Some Fed watchers predict the Fed will leave rates at that record-low range on Wednesday
and probably through the rest of this year in a bid to help brace the economy.

One option being considered is 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.

"If the program is successful, (it) could be increased in size or expanded in scope to provide
financing for additional types of securities, such as commercial mortgage-backed securities,
for which the markets are currently distressed," Donald Kohn, the Fed's No. 2 official, told
Congress earlier this month.

Another option is for the Fed to buy longer-term Treasury securities. Since the credit and
financial crises erupted in the summer of 2007, the Fed has rolled out multiple programs to
respond to the crisis. It is buying up short-term debt called commercial paper. It is making
cash loans to banks and has bought mortgage-backed securities guaranteed by Fannie Mae,
Freddie Mac and Ginnie Mae in the effort to bolster the housing market. And because of all
these programs, the Fed's balance sheet has increased to $2.05 trillion, up from nearly $900
billion in September.

Even as the Fed wants to use all tools available to battle the crisis, it is mindful that there are
dangers: the potential to put ever-more taxpayers' dollars at risk; sow the seeds of inflation in
the future; and encourage "moral hazard," where companies feel more comfortable making
high-stakes gambles because the government will rescue them.

I am Tim Johnson and this has been the California Business Minute.