Factbox: What ammunition does the Fed have left?

WASHINGTON (Reuters) - The Federal Reserve would need to consider further support for the economy if the outlook weakened "appreciably," according to minutes of the central bank's August 10 policy-setting meeting.

At that meeting, the Fed decided to hold the size of its balance sheet steady by buying more government debt with cash from the maturing mortgage bonds it bought to stem the 2007-2009 financial crisis.

A few policy-makers worried that move could send an "inappropriate signal" to investors about the Fed's readiness to embark upon renewed large-scale asset purchases, the minutes showed.

Below is some of the ammunition the Fed still has left if it decides the economy needs more support.

USE CASH FROM MATURING BONDS TO BUY MBS

The Fed is currently reinvesting money from maturing mortgage-related debt into longer-term U.S. Treasuries. The minutes showed that if market conditions were to change, the Fed could consider reinvesting in mortgage-backed securities.

BUY MORE ASSETS

The Fed could decide to move beyond simply reinvesting proceeds from maturing securities and actively expand its balance sheet by buying more Treasury securities or MBS.

St. Louis Fed President James Bullard said in Arkansas earlier this month the Fed might need to ramp up its purchases of U.S. Treasury debt if price levels keep softening, raising the threat of deflation.

Buying more Treasuries could raise questions about whether the Fed is simply printing money to finance the massive U.S. budget deficit and debt, which could undermine confidence in the dollar and drive interest rates higher.

Fed Chairman Ben Bernanke said at a Jackson Hole, Wyoming, central bankers' retreat last weekend that buying more longer-term securities would ease credit conditions but cautioned policymakers don't have a good way of measuring exactly how effective such a step might be.

Another potential worry is that boosting Fed buying of longer-term securities may erode confidence that the central bank will be able to move speedily to tighten credit when growth picks up, thus fueling inflation expectations.

DEEPEN ITS COMMITMENT TO HOLD RATES LOW FOR A LONG TIME

Since March 2009, the Fed has said it anticipates that economic conditions are likely to warrant "exceptionally low" borrowing costs for "an extended period." It has specified that those conditions include high unemployment, subdued inflation trends and stable inflation expectations.

The Fed could rephrase that promise to provide additional guarantees to markets of rock-bottom rates even when the recovery begins to take off.

However, Bernanke might find it hard to garner support for such a move. A number of Fed officials have expressed concern that the low-rate pledge could hinder the central bank from acting quickly if needed. He said over the weekend it was hard to convey policy intentions "with sufficient precision and conditionality" in a statement without misleading markets.

STOP PAYING INTEREST ON EXCESS RESERVES

The Fed could try to spark more lending by cutting the interest rate it pays banks on reserves they hold at the central bank from the current 0.25 percent. This would only be effective if there was unsated loan demand, which some doubt.

Bernanke said that cutting the already-low rate further would likely have little effect on overall financial conditions. And it could potentially disrupt some financial markets and institutions, making the federal funds market less liquid and prompting participants and market-makers to exit.

OPEN A NEW LENDING FACILITY

The Fed could open or keep open a lending facility to increase credit availability for any sector of the economy it wants to help, such as commercial real estate.

The Fed would have to argue that crisis conditions exist in order to lend to non-banks, and may be shy about doing so after similar actions were criticized during the 2007-2009 financial crisis.

Bernanke has made no public mention of this option as a possibility, but some prominent economists have suggested such a facility could be designed to target troubled areas of the economy and thus aid an overall recovery.

(Reporting by Mark Felsenthal, Kristina Cooke, Pedro Dacosta and Glenn Somerville, editing by Todd Eastham)