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Fed Considers Using Reserves To Stimulate Economy

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The Eccles Building, which houses the U.S. Federal Reserve in Washington, D.C.

In the Federal Reserve's latest effort to combat low inflation, the Fed is considering pressuring banks to lend more by dishing out smaller returns to Wall Street on money stored at the US Central Bank.

That’s according to an academic paper presented by economist Ricardo Reis, and it’s one proposal among many geared at stimulating global economies after central banks have cut interest rates to near zero with little to show for it, Fortune reports. Reis hopes pressuring banks to lend out more money will push inflation up to the Fed’s 2% goal.

Banks are paid 0.5% for the $2.6 trillion in reserves they have stored at the Fed, and this new proposal would adjust those Fed payments to the inflation rate, giving banks a reason to lend when the economy is weak. [Fortune]