Krishna Guha
Krishna Guha - 
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KAI RYSSDAL: For the first time in a long while the Federal Reserve meeting that started this afternoon isn't about interest rates. The Fed Funds Rate, the short-term rate that Bernanke and the gang control, is already at 0.25 percent, it's lowest ever. The Fed's been making loans and guaranteeing assets for a year or more. And still there's no sign of recovery.

Commentator Krishna Guha says there's lots more the Fed can do -- but there's a catch.

KRISHNA GUHA: There's a risk this week's Fed policy meeting could be a bit of a damp squib -- at least compared with the last one, when rates were slashed and a radical new policy framework emerged.

There's a lot more the Fed would like to do to revitalize credit markets. But the law prevents it from taking much credit risk. So, in order to expand its riskier lending operations, it needs capital from Treasury's TARP fund to absorb likely losses.

The Obama Treasury might not be ready to give the Fed the money just yet. And it might not want the Fed to take all the credit for what are, after all, Fed-Treasury joint ventures.

The market won't take too kindly, though, to any suggestion that the Fed is in effect on hold. So, here's what I'd like to see:

First, the Fed should expand their existing scheme that provides low-cost money to investors willing to buy consumer and small business loans packaged as securities. By supporting the secondary market for these securities, the Fed can revitalize the primary markets where these loans are made. This would require additional Treasury risk capital.

Second, they need a similar scheme to finance investors willing to buy commercial real estate and jumbo residential mortgage-backed securities to bring these markets back to life, too. Again, this would require more risk capital from Treasury.

But one thing the Fed can do without the need for more Treasury support is to step up the rate at which they're buying Fannie Mae and Freddie Mac mortgage-backed securities and debt. In bang-for-the-buck terms, buying Fannie and Freddie paper makes more sense than buying U.S. Treasuries.

Finally, the Fed should seek the authority from Congress to issue its own debt, to help it manage the wind-down of all these lending operations once the crisis is over.

Will anything on my list come to pass? I think everything will sooner or later. But exactly when is harder to tell. The Obama team may well be forthcoming, but they seem to dislike incremental intervention and might be storing up ammunition for a big bang in mid-February.

That could leave the Fed treading water for a while -- an uncomfortable prospect for investors and the economy.

RYSSDAL: Krishna Guha is the U.S. economics editor for the Financial Times.