Loan Modification

It?s far from clear that the plan will work in the way the Fed hopes. In the first place, the CD program is likely to be too small to matter. The Fed is worried about over a trillion in excess reserves that it has built up inside of banks to keep the financial system afloat. It seems likely that the CD program won?t be anywhere near large enough to handle this.

The plan could also run into trouble with politicians. There is still a lot of criticism of the banks for not lending enough. The entire point of this program is to keep money out of the lending stream. As long as unemployment and small business bankruptcies are rising, fighting inflation by intentionally reducing bank lending will be a political lightning rod. Indeed, the direct nature of this program seems likely to make it far more controversial than traditional Fed inflation fighting measures.