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The snow storms that slammed the mid-Atlantic region this month shut down government agencies around Washington, D.C., long enough for the U.S. Food and Drug Administration to delay its review of Alkermes Inc.’s new drug application for diabetes therapy exenatide.

Waltham, Mass.-based Alkermes (Nasdaq: ALKS), which co-developed the drug with Amylin Pharmaceuticals Inc. and Eli Lilly and Co., said the FDA is adding five days to its review of exenatide, moving its action date out to March 12 cash advance payday loan.

Exenatide is intended to be an extended-release medication for Type 2 diabetes designed to deliver continuous therapeutic levels of exenatide in a single weekly dose. The application for exenatide’s once-weekly formula was submitted in May 2009 and accepted by the FDA in July 2009.

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General Electric Co and Vivendi SA have agreed in principle to value the French company’s 20 percent stake in NBC Universal at $5.8 billion, a source familiar with the matter said on Monday, paving the way for Comcast’s proposed deal with GE.

GE and Vivendi have spent weeks negotiating over the value of Vivendi’s stake in NBC Universal, holding up Comcast’s plan to buy a controlling stake in NBC Universal. Vivendi has to agree to sell its stake to GE to make the Comcast deal possible.

With the two sides reaching an agreement on valuation, an announcement on the Comcast-GE deal could come as early as the end of this week, a second source said.

(Reporting by Jui Chakravorty and Anupreeta Das; Editing by Richard Chang)

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The Association of Southeast Asian Nations said it is “on track” to achieve its goal of eliminating tariffs on most goods traded within the region by the beginning of 2010.

The group aims to form a free-trade area by Jan. 1 that would remove tariffs on more than 87 percent of imports, according to a statement by Southeast Asian leaders, who are meeting in Cha-Am, Thailand this weekend. Six of the bloc’s 10 members will implement the tariff eliminations, while the rest, which are less developed, will follow later.

Asean is attempting to create an economic zone modeled after the European Union, without a common currency, by 2015. The group has said it needs to improve its competitiveness as China and India, the world’s two fastest-growing major economies, attract an increasing chunk of global investment.

“The effective implementation of this major milestone in the free-trade area brings Asean closer to the Asean Economic Community where free flow of goods is one of its major objectives,” the statement said.

The Southeast Asian nations are also planning to open industries including transportation and financial services. Meanwhile the group’s plan to implement a free-trade agreement in goods may be delayed amid disputes among some nations.

Thailand and the Philippines are arguing over tariffs on rice imports. Thailand has threatened not to approve the Asean Trade in Goods Agreement if the Philippines doesn’t lower import tariffs on rice, the Bangkok Post reported Oct. 20, citing Nuntawan Sakuntanaga, head of the Trade Negotiations Department.

“We urge member states to resolve the differences at the earliest opportunity,” the leaders said today.

As well as Thailand and the Philippines, Asean’s members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore and Vietnam.

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Australian central bank Governor Glenn Stevens’s view that he can’t be “too timid” in raising borrowing costs is stoking speculation the benchmark interest rate will be increased next month by the most in a decade.

Experience “counsels against” an approach where policy makers who cut rates rapidly in response to a threat become “too timid to lessen that stimulus in a timely way when the threat has passed,” Stevens said in Perth yesterday.

The comments pushed Australia’s currency to a 14-month high and prompted investors to triple bets policy makers will increase the overnight cash rate target on Nov. 3 by half a percentage point to 3.75 percent. Stevens became the first Group of 20 central banker to increase borrowing costs when he unexpectedly boosted the rate last week by a quarter point.

“Stevens has put 50 basis-point moves on the table,” said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “The safest time to raise rates quickly is when you know they are at the wrong level, and this is the first time a recession has ended with so little spare capacity.

“It’s not going to be long before the economy is running at full pelt again.”

Investors are certain Stevens will raise rates at least another quarter point next month as consumer confidence rises and unemployment falls, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. Chances of a half-point increase next month rose to 36 percent from 10 percent prior to Stevens’s speech and 2 percent on Oct. 14, the futures showed at 9:09 a.m. today.

Currency Rises

The Australian dollar rose to as high as 92.11 U.S. cents after yesterday’s speech, the strongest since August 2008, and traded at 92.09 cents at 9:20 a.m. in Sydney today. The two-year government bond yield jumped to 4.81 percent at 9:20 a.m. today from 4.63 percent before yesterday’s speech.

“I’ve said it consistently, interest rates will go up because they’ve been brought to emergency lows,” Prime Minister Kevin Rudd told Melbourne radio station 3AW today. “I don’t see any point whatsoever in trying to be cute with people about that.”

Stevens slashed borrowing costs by a record 4.25 percentage points between September 2008 and April to cushion the nation’s economy against the global financial crisis. His cuts included 1 percentage point reductions in October, December and February, the biggest moves since 1992.

‘Too Timid’

“If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework,” Stevens said. “Experience here and elsewhere counsels against that approach.”

“The governor has made it clear he’s keen to get rates back to normal quickly,” said RBS Group Australia Ltd. Chief Economist Kieran Davies, who is tipping a half-point increase next month. The last time Australian policy makers raised borrowing costs by that much was in February 2000.

Davies is the only one of 19 economists surveyed by Bloomberg after Stevens’s speech to tip a half point increase. Sixteen expect a quarter-point move and two predict no change.

Australia is only the second country after Israel to raise borrowing costs since the height of the global financial crisis. Israel isn’t a member of the G-20. U.S. Federal Reserve Chairman Ben S. Bernanke said last week he and his colleagues at the Fed “believe that accommodative policies will likely be warranted for an extended period.”

Other Asian central banks may follow Stevens in raising rates.

‘Tightening Wave’

“The region could be at the leading edge of the monetary tightening wave, though we believe the pace will be measured and modest,” Lee Heng Guie, chief economist at CIMB Investment Bank Bhd. in Kuala Lumpur, part of Malaysia’s second-largest banking group, said yesterday in a note to clients. “India and Korea will probably be the first among the Asian central banks to raise rates in the first half of 2010.”

Evidence is mounting that Australia’s economy, which skirted the global recession, is strengthening. Recent reports show consumer confidence rose this month to the highest level in more than two years, the jobless rate unexpectedly fell to 5.7 percent in September from 5.8 percent in August, the first drop in five months, and retail sales gained.

Gross domestic product rose 1 percent in the first half of this year as consumers increased spending after the government distributed more than A$20 billion ($18 billion) in cash to households. The government is spending another A$22 billion on roads, railways and schools.

“The period of greatest weakness in the Australian economy is probably past,” Stevens said yesterday. “Barring another serious international setback, the economy is likely to continue on a path of gradual expansion during 2010.”

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World leaders announced the Group of 20 nations is replacing the G-8 as the main forum for global economic coordination, reflecting a shift in power from rich countries to emerging markets.

The decision, unveiled in a White House statement late yesterday, comes as President Barack Obama, Chinese President Hu Jintao and other leaders gather in Pittsburgh for their third summit in a year to reshape the governance of the world economy following the worst financial crisis since the Great Depression. The G-8 will still exist and focus on matters such as development and security matters, Prime Minister Stephen Harper told reporters today. Canada hosts the G-8 next year.

The transfer of influence to the broader group, whose membership ranges from the U.S. to China to Saudi Arabia, symbolizes the fact that the richest industrial nations now lack the sway to govern the world economy alone after their excesses sparked the turmoil that tipped the globe into recession.

“The G-20 needs to prove it can make the tough calls and implement agreed outcomes in a timely fashion,” said Tim Adams, who served as the U.S. Treasury’s top international official under former Secretaries John Snow and Henry M. Paulson, and is now managing director of the Lindsey Group. “I think it will succeed, but the G-20 must prove skeptics wrong, and that will take time and effort.”

‘Premier’ Economic Summit

The G-20 accounts for about 85 percent of global gross domestic product and was created after a spate of currency devaluations plagued emerging markets from Russia to Thailand in the 1990s. The G-8 oversees about two-thirds of global GDP.

Canada will host the first summit of leaders from the G-20 in June under the grouping’s new role as the “premier” global economic summit, Harper said, while a second summit will take place in South Korea in November.

Canada will also hold a summit of leaders from the smaller group at about the same time, Harper said.

“They will be distinctive summits,” Harper told reporters today in Pittsburgh in a joint press conference with South Korean President Lee Myung-Bak. “We are not replacing the G- 8.”

The G-8 meeting was already scheduled to take place June 25-27 in Muskoka, Ontario, where Harper said the G-20 summit will also take place.

A government official, on condition he not be identified, told reporters the two summits will be back-to-back. The official said talks on making the G-20 the main economic forum first began at the G-8 summit in L’Aquila, Italy, last July.

‘One Chance’

“What we are trying to do is create a system for economic cooperation across the world,” U.K. Prime Minister Gordon Brown said yesterday. “We have this one chance to make a huge success of international cooperation.”

Originally a forum for finance chiefs, G-20 leaders met for the first time in Washington last November and again in April in London as they sought to rescue the global economy from its deepest slump in seven decades.

The financial crisis has thrust greater responsibility on to the G-20. At the onset of the turmoil, central bankers used talks near Cape Town in November 2007 to hatch a plan to inject more dollars into markets.

The G-20’s newfound power reflects how the recent slump was led by housing and financial market busts in major economies and the recovery is now being driven by countries such as China. That’s a reversal from previous crises when the G-8 was in the driver’s seat of the recovery effort.

China’s Role

China has already overtaken Germany to become the world’s third-largest economy and may soon be named the biggest exporter. It passed Japan a year ago as the main foreign investor in U.S. government debt. China, Russia, Brazil and India together hold about 42 percent of international reserve assets, excluding gold.

“You can’t possibly have a mechanism” for sustaining global economic stability without including China, said Laura D’Andrea Tyson, an outside adviser to President Barack Obama and former chairman of the White House Council of Economic Advisers under President Bill Clinton. “It’s too big a player in trade and investment.”

Economists at JPMorgan Chase & Co. predict developed economies will shrink 3.3 percent this year and grow 2.8 percent in 2010, compared with emerging-market growth of 0.5 percent and 5.8 percent respectively.

G-20 leaders meeting today are discussing an agenda aimed at tackling global imbalances, restraining banker pay, raising capital at financial companies and revamping control of the International Monetary Fund.

Bretton Woods

The need for economic policy makers to convene regularly grew out of the turmoil that followed the abandonment of the Bretton Woods system of fixed currencies and the oil shock of the 1970s. In 1975, French President Valery Giscard d’Estaing gathered the leaders of West Germany, Italy, Japan, the U.K. and the U.S. at a summit in Rambouillet, France.

The group soon expanded to seven and its influence reached its zenith through the Louvre and Plaza currency accords of the 1980s and with its responses to financial crises in Asia, Latin America and Russia in the 1990s. It hasn’t intervened in foreign exchange markets since a rescue of the euro in September 2000.

Russia joined after the end of the Cold War to expand it to the G-8, although its officials are still not invited to finance and economic talks.

More Investor Attention?

The G-20’s new formal role may prompt some investors who had dismissed the G-7 as irrelevant to pay more attention to international gatherings.

“On G-7 meeting weekends now I go fishing, no reporters call and writing up summaries of the G-7 for the most part is pointless as there is no news,” David Gilmore, a partner at Foreign Exchange Analytics, wrote in a report to clients today.

The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

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Paul Volcker, a former Federal Reserve chairman and now a outside economic adviser to President Barack Obama, criticized the administration’s plan to give the Fed authority to supervise “systemically important” financial firms.

“I don’t know what systemically important institutions are,” Volcker said. “But I’m sure that if you picked them out, people will assume they’re going to be saved, that they’re too big to fail.”

Volcker’s remarks appeared in the form of a “conversation” with Gary Stern, who retired last month as president of the Fed Bank of Minneapolis, and published in “The Region,” the bank’s quarterly bulletin. Volcker, 81, is chairman of the Economic Recovery Advisory Board, a body created by Obama in February to recommend responses to the crisis.

Obama’s plan to give the Fed powers to monitor risks to the financial system is aimed at avoiding a repeat of the financial meltdown that led to $1.6 trillion of bank losses and writedowns and triggered a global recession. The Obama plan would label banks including Bank of America Corp. and Citigroup Inc. as “systemically important” and subject them to capital and liquidity requirements and stricter oversight.

Jen Psaki, a White House spokeswoman, declined to comment on Volcker’s remarks.

Council of Regulators

The plan has drawn criticism from lawmakers including Senate Banking Committee Chairman Christopher Dodd, who has said the central bank failed to use its existing supervisory powers to curb some of the lending practices that contributed to the crisis. Congressional leaders are leaning toward vesting authority over capital, liquidity and risk-management practices of big banks in a council of regulators.

The administration also wants the power to seize financial institutions if they run into trouble. And Obama’s regulatory framework would make it mandatory for large hedge funds, private-equity firms and venture-capital funds to register with the Securities and Exchange Commission.

Volcker said the central bank should instead oversee bank regulation carried out by an independent agency. The chairman of that agency could also be a vice chairman of the Fed, both to keep the central bank in the loop and increase accountability.

Volcker, who was Fed chairman from 1979 to 1987, said the central bank itself needs some reorganization “to more clearly focus responsibility for the regulatory side of the house.”

“There’s no doubt in my mind that the attention the Federal Reserve has paid to regulation has gone up and down over the years, depending upon both the intellectual and market environment, and the personalities involved.”

Hedge Funds

He also would limit regulation of non-bank financial institutions such as hedge funds.

“If they get big enough, then they’re going to need capital requirements and leverage requirements,” Volcker said. “But I don’t think that’s going to be many firms. I’d like to create the impression, to the extent you can, that there’s no automatic bailout of those institutions.”

Volcker said he has a different “regulatory philosophy” than the Treasury Department. Banks, he said, provide basic financial services, including payments and credit, and should have some government protection and support.

Hedge funds, private equity, and proprietary trading are different businesses, Volcker said, and should be kept separate from banking. He cited Goldman Sachs Group Inc., which became a bank holding company last September, took government aid, and yet has a large proprietary trading operation that is responsible for much of its profit.

Taxpayer Support

“There’s nothing wrong with making money,” Volcker said. “But I don’t want them to make money by taking risks with the support of the taxpayer.”

An industrial company such as General Electric Co. presents another problem, he said.

“It’s certainly not a bank in any traditional sense, but it’s a big financial business,” Volcker said. “Do you want to get into the business of directly or indirectly supporting General Electric?”

Volcker, who pushed the federal funds rate as high as 20 percent to throttle inflation in 1980, also took issue with the current Fed’s management of monetary policy. Its statements are confusing, he said: on the one hand they worry about inflation falling, on the other, the commit to price stability.

“I say, ‘Look, make up your mind,’” Volcker said.

He disagrees with Fed Chairman Ben S. Bernanke’s call for an inflation target. “I have not been in favor of inflation targeting,” Volcker told Stern. “I just don’t like it symbolically.”

In congressional testimony in February, before the administration released its financial-overhaul plan, Volcker said giving the Fed additional regulatory authority would distract members from their main job of making monetary policy.

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New Zealand’s retail sales unexpectedly fell for a second month in July, adding to signs the economy faces a slow recovery from the worst recession in three decades.

Sales dropped 0.5 percent from June when they declined a revised 0.1 percent, seasonally adjusted, Statistics New Zealand said in Wellington today. Core retail sales, which exclude car yards, fuel outlets and workshops, fell 0.5 percent.

Reserve Bank Governor Alan Bollard last week said the economy faces a “patchy” recovery after contracting for six straight quarters as the jobless rate rises and a stronger currency curbs exports. He kept the benchmark interest rate unchanged at record-low 2.5 percent on Sept. 10 and said he doesn’t plan to raise borrowing costs until late 2010.

“The recovery in demand is likely to be muted,” said Jane Turner, economist at ASB Bank Ltd. in Auckland. “The Reserve Bank may be relieved too see consumer spending remaining soft.”

New Zealand’s dollar fell to 70.42 U.S. cents at 11:40 a.m. a.m. in Wellington from 70.56 cents immediately before the report was released.

Sales were expected to rise 0.4 percent, according to the median estimate in a Bloomberg News survey of 12 economists. June sales were revised from a 0.1 percent gain reported last month.

Job Losses

Bollard said last week the economy may grow just 0.1 percent in the three months ending Sept. 30. He expects consumer spending will contract in the year ending March 31.

Curbing spending, the jobless rate rose to a nine-year high of 6 percent in the second quarter. The Reserve Bank forecasts it will increase to 6.9 percent by mid-2010. The Treasury Department last week forecast a peak of 7 credit reports free.5 percent.

Retail sales fell in 15 of the 24 store categories measured in today’s report, led by fuel outlets and department stores.

The monthly sales series isn’t adjusted to exclude price movements and sales. Fuel costs fell 3.5 percent in July, according to government figures.

Supermarket and grocery store sales, which make up a fifth of the total, fell 0.3 percent. Department store sales declined 2.2 percent following a 2.8 percent drop in June.

Vehicle dealer sales increased 2.1 percent. Purchases from fuel outlets fell 2.9 percent.

House Sales

The core retail trend series, which excludes irregular movements as well as seasonality, rose 0.1 percent from June. The monthly pace of decline has slowed from about 0.3 percent in the three months through May, the statistics bureau said.

Economists expected an increase in consumer confidence, fanned by a recovering property market, would bolster spending.

House prices rose 1.2 percent in August, according to a Real Estate Institute of New Zealand Inc. index published earlier today. House sales fell from July, though rose 39 percent from a year earlier. The number of days it took to sell a property was the lowest since December 2007, the institute said.

“The recent pickup in housing demand comes when listings have been very low, causing the market to become slightly heated” said ASB’s Turner. “Recent stabilization in the market is likely to tempt sellers back into the market, restoring the balance between supply and demand.”

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Former Federal Reserve Chairman Alan Greenspan said banks should be forced to hold more capital on their balance sheets, reinforcing a weekend push by finance chiefs from the Group of 20 nations.

“Capital requirements even during non-crisis periods have to have a larger buffer,” the 83-year-old former policy maker said today via teleconference to the Antique India Markets Conference in Mumbai. “We do need significant changes.”

Noting the world economy was emerging from of the financial crisis “fairly quickly,” Greenspan made his call for tighter capital requirements two days after a G-20 meeting in London proposed having banks increase the quantity and quality of assets they keep in reserve for when economies stumble. The drive to revamp regulation comes after excessive risk-taking by the world’s banks led to $1.61 trillion in losses and writedowns, taxpayer-funded bailouts and a global recession.

“Financial intermediaries allowed institutions to go into default by taking this kind of risk,” Greenspan said. “There’s no substitute for capital. Don’t think the crisis could have been prevented unless we can change human nature.”

Once regarded by some observers as the greatest central banker, Greenspan has seen his legacy criticized since the U.S. subprime-mortgage market collapsed in 2007. Having run the Fed from 1987 to 2006, he said last in October that a “flaw” in the ideology of free-market risk management he had espoused contributed to the “once-in-a-century” credit crisis.

‘Euphoria’

Greenspan today repeated how rare the turmoil was and blamed it on an under-pricing of risk or “building of euphoria” that emerged at the start of the century as interest rates and inflation ran into single-digits.

His hands-off approach to asset bubbles has been challenged by some Fed district-bank presidents, such as Janet Yellen. Former Fed Vice-Chairman Alan Blinder and Stanford University professor John Taylor are among the economists who say Greenspan also left interest rates too low for too long earlier this decade, encouraging the easy credit that fostered the housing bubble.

Speaking a week before the first anniversary of the collapse of Lehman Brothers Holdings Inc., he said that event had led to a “massive contraction” in trade financing and surge in inventories. He predicted some exotic financial instruments, such as collateralized debt obligations, won’t return even after the crisis passes.

He predicted that China will witness a “diffusion of power” and that global demand for oil won’t be “radically changed.” In the U.S., the phenomenon of mortgages exceeding the value of homes appears to be peaking, he said.

The former Fed chairman has returned to his role as a private economic forecaster, speaking at conferences and to groups of bankers and investors, while consulting for clients such as Deutsche Bank AG.

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The worst U.S. housing slump since the Great Depression is just starting to make its mark on inflation, indicating the Federal Reserve can maintain its monetary stimulus well into 2010, economists said.

The price of renting a house or apartment, which accounts for 30 percent of the cost of living, was unchanged last month, according to the Labor Department’s report on consumer prices issued today in Washington. One measure designed to track the value of owner-occupied houses rose the least over the past 12 months since records began in 1982.

The real-estate decline that started more than three years ago is likely to keep pushing up foreclosure and vacancy rates, which are already at record levels. The glut of properties will continue to pressure rents and limit inflation, giving Fed policy makers more time to remove the $1 trillion they’ve injected into the banking system.

“The Fed keeps the spigot wide open” at least through the middle of next year and maybe into 2011, said Donald Ratajczak, chief consulting economist at Morgan Keegan Inc. in Memphis, and a former director of the Economic Forecasting Center at Georgia State University, where he won acclaim for his inflation forecasts in the 1990s.

The cost of living was unchanged in July and dropped 2.1 percent from a year earlier, the biggest 12-month decrease since 1950, today’s Labor Department report showed. Excluding food and energy costs, the so-called core consumer-price index increased 1.5 percent from July 2008, the smallest gain since February 2004.

‘New Dimension’

“There is a risk that sometime in the next few months, you could see a negative print on core CPI,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York and a former Fed economist.

“The debate on the Fed will take on a whole new dimension,” Feroli said. “Now people will say, even with growth, the Fed will be a little bit leery here of deflation risks and will want to keep accommodation longer than is priced in the market.” Deflation is a persistent drop in prices that hurts the economy by making debts harder to pay and eroding corporate profits payday loans.

Rents, which make up almost 40 percent of the core CPI, have played a leading role in that deceleration. A measure known as owners-equivalent rent, an imputed value for owner-occupied homes that accounts for almost the entire category, rose 1.7 percent in the 12 months that ended in July, the smallest gain since records began almost three decades ago.

Actual home and apartment rents, the smaller category, rose 0.4 percent during the last six months, the least since August 1963.

Record Vacancies

Indications are that the pressures will intensify in coming months. Rental vacancy rates climbed to 10.6 percent in the second quarter, the highest level since record-keeping began in 1956, according to figures from the Census Bureau.

A total of 360,149 properties received a default or auction notice or were seized last month, according to data seller RealtyTrac Inc. One in 355 households got a filing, the highest monthly rate in RealtyTrac figures dating to January 2005, the Irvine, California-based company said.

Fed policy makers who met in Washington this week said that excess capacity would probably keep inflation “subdued for some time.” Investors are betting central bankers will start raising rates in the first half of 2010, according to futures trading on the Chicago Board of Trade.

Not all economists are as sanguine as the central bakers about the outlook for prices.

“It might be time to start pushing the panic button on deflation risk were it not for signs that the U.S. economy has bottomed,” David Greenlaw, chief fixed-income economist at Morgan Stanley in New York, said today in a note to clients. “We expect core inflation to level off later this year,” he said, because reductions in spare capacity are more important in determining price trends than the amount of the excess.

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The U.S. Federal Reserve is “confident” of its ability to stem inflation after what’s likely to be an “extended period” for policies aimed at restarting lending, Chairman Ben S. Bernanke said.

“When the economic outlook requires us to do so,” the central bank will employ a series of tools to tighten policy, Bernanke said, writing in an opinion piece in the Wall Street Journal.

Bernanke outlined five ways the central bank will be able to prevent the record reserves that banks have accumulated from causing money supply and inflation to surge. Officials will use the interest rate on banks’ deposits with the Fed as a principal tool, which they can supplement with other means, including reverse-repurchase agreements and term deposits, he said.

The opinion piece, published late yesterday, before Bernanke’s semiannual monetary-policy testimony to Congress today, signals he’s seeking to reassure investors that the Fed will contain consumer prices when the economy recovers.

“Bernanke is preparing the market by communicating at an early stage,” said Seiji Shiraishi, chief economist for Japan at HSBC Securities Japan Ltd. in Tokyo. “Whether they can do that will depend on the strength of the cyclical recovery and the soundness of the banks.”

The 10-year note yield fell three basis points to 3.58 percent at 12:53 p.m. in Tokyo, according to data compiled by Bloomberg.

‘Top Priority’

The Fed said in minutes of last month’s policy meeting that making sure it has the ability to tighten credit at some point is a “top priority.” Officials discussed their options at the session, even as most policy makers judged the economy at risk to further shocks, the minutes showed last week.

“We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner,” Bernanke said in the opinion article.

Since March 2008, the Fed has taken steps to combat the credit crisis that included expanded emergency lending to banks, support for the commercial-paper market and a lifeline to insurer American International Group Inc. Total assets on the Fed’s balance sheet now stand at $2.07 trillion, up $1.16 trillion over the past year. The central bank has also cut the benchmark lending rate to a range of zero to 0.25 percent.

Need for Strategy

Without an exit strategy, the increase in bank reserves could cause inflation because banks would be able to lend on the money, potentially fueling a surge in money growth cheap car insurance. The Fed, then, must either shrink the amount of reserves or find a way to keep banks from lending them for bigger yields.

“We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability,” Bernanke said.

To keep interest rates low and credit flowing to housing markets, the Fed plans this year to buy as much as $1.75 trillion of mortgage-backed securities, housing-agency debt and Treasuries. The last exit option, “if necessary,” would be to sell some of the securities on the open market, Bernanke said.

In a term reverse-repurchase agreement, the central bank would enter into a longer-term contract to sell securities to primary dealers, in effect removing money from the banking system temporarily, and repurchase them at a later date.

Term Deposits

The Fed’s proposed term deposits would be similar to banks’ certificates of deposit for customers, and funds held at the Fed would not be available to lend in the overnight federal funds market, Bernanke said.

Another option would be for the Treasury to sell bills and deposit the funds with the Fed, Bernanke wrote.

“Although the Treasury’s operations are helpful, to protect the independence of monetary policy, we must take care to ensure that we can achieve our policy objectives without reliance on the Treasury,” the Fed chief said.

The Fed received legislative authority to begin paying interest on reserves in October as part of legislation creating the $700 billion financial-rescue fund.

Fed officials hoped that would help keep the benchmark interest rate stable while the central bank flooded the banking system with cash. The authority failed to keep the main federal- funds rate from declining almost to zero before the Fed officially lowered it that far. The Fed currently pays 0.25 percent on required and excess reserve balances.

Banks’ deposits with the Fed increased to $772 billion in June from $9.3 billion a year earlier.

Bernanke said the deposit rate will work better “under more normal financial conditions” and limit the gap between that and the federal funds rate. “If that gap persists,” the Fed will use the other tools, he said.

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