Federal Reserve Chairman Ben S. Bernanke may be taking anotherlook at cutting the interest rate the Fed pays on bank reserves tobring down short-term borrowing costs and spur the slowing U.S.expansion.

Bernanke testified to Congress on July 17 that reducing the ratefrom its current 0.25 percent is one of several easing steps theFed might take to reduce unemployment stuck above 8 percent formore than three years. In February, by contrast, the Fed chairmantold Congress that lowering the rate might drive away investorsfrom short-term money markets.

“They're reconsidering it,” said Ward McCarthy, a formerRichmond Fed economist. A July 5 decision by the European CentralBank to cut its deposit rate to zero is prompting renewed interestin the strategy, said McCarthy, chief financial economist atJefferies & Co. McCarthy said it's unlikely the Fed will reducethe rate at a two-day meeting that starts tomorrow.

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