It seems likely that the Federal Reserve will provide additional easing in reponse to a declining economic environment when it meets later this week. But what form will this easing take? Tim Duy does the Lord's work in trying to read the tea leaves here. He ultimately concludes that nobody has any idea, and that this is a major communications failure on the part of the Federal Reserve. "We really have no idea what the Fed is going to do or why they are going to do it. Reasonable analysis ranges from nothing to massive quantitative easing."
Cardiff Garcia of FT Alphaville also tries to make sense of the possibilities, including discussing this decision tree (why aren't there more decision trees on blogs?) from Credit Suisse:
That's a pretty good list of ideas; Garcia has more, including a chart with pros/cons of each option.
One question that Gannon doesn’t deal with directly: under Section 14 b 1 the Fed has the authority to purchase any obligation of a state or local government of 6 months maturity or less. This provision seems clearly to permit a mass refinancing of state and local government debt at the current 6 month interest rate (very close to 0), which would save state and local gov’ts approximately $75 billion a year (going by the flow of funds #s for state and local interest payments). Moreover, since state and local govts do the bulk of infrastructure investing, the fed could create a program to fully fund such investment through purchases of newly issued 6 month bonds, for projects that meet criteria the Fed sets out (such as being approved by a small committee of civil engineers appointed by the regional fed branches for that purpose). Finally, under section 24 of the Act, the fed can buy from national banks loans to finance residential construction, which in effect would give the fed the ability to spur new multi-family construction (sorely needed, as evinced by rising rents) by enabling lending banks to effectively sell the loans off their books.