Fed Chief's Exit Options

I read an article in the Business Times (16 Feb 2010) and came across the options available to the central bank to exit from their current predicament.

There are three options highlighted in the article. The first option is to encourage banks to store money at the Fed by increasing interest rates. This measure would put significant upward pressure on all short-term interest rates. This would also force many banks to raise their rates in order to compete with the Fed as a place to deposit their money This effectively would tighten the money supply.

The second option is to enter into "reverse repurchase agreements". This agreement allows the Fed to sell securities such as Treasury bonds to investors for a short period and then buy them back at a slightly higher rate at a later date, allowing it to remove some money out of circulation for a time.

Having term deposits is the third option. These term deposits would help to encourage banks to place their money with the central banks for a longer period. Thus, this in effect would tighten the country's money supply.