The Federal Reserve Bank of New York said Monday it is "testing" reverse repurchase agreements as it studies a tool the central bank could use to sop up excess cash.

Since the beginning of the financial crisis, the Fed has made a point of flooding markets with money in an effort to revive credit markets. With tentative signs of improvement in those markets, the Fed is now faced with the challenge of withdrawing much of that liquidity before it leads to inflation.

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