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Federal reserve seen holding rates, policy steady

Federal reserve seen holding rates, policy steady
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First Published: Wed, Apr 29 2009. 09 33 AM IST
Updated: Wed, Apr 29 2009. 09 33 AM IST
Washington: With signs the deep US economic swoon may be easing, Federal Reserve policy makers appear ready to hold off new measures to flood the economy with money while keeping interest rates steady near zero on the final day of a two-day meeting on Wednesday.
The Fed’s interest-rate setting Federal Open Market Committee is due to release a statement of its outlook for the world’s largest economy and its policy prescriptions at about 1815 GMT.
“With things going according to plan for once, the FOMC has no need to conjure up some new liquidity tool to show that it is on the job,” economists at Wrightson ICAP in Jersey City, New Jersey, wrote in a note to clients.
The Fed is likely to restate its commitment to keeping rates exceptionally low for an extended period, and to use all available tools to promote economic recovery. The US central bank cut interest rates to near zero in December as part of unprecedented campaign to combat the painful recession and paralyzing credit crunch.
The US central bank stunned markets in March with aggressive strokes to boost lending even with its rate-cutting ability spent, committing to buy $300 billion in longer-term Treasury securities and expanding its purchases of debt and mortgage-backed securities issued by government-sponsored mortgage enterprises by $850 billion.
Investors will watch for any sign the Fed is considering increasing its Treasury purchase program. The initiative is intended to lower borrowing costs, but with yields on the benchmark Treasury 10-year note hovering near 3%, some analysts believe policy-makers will try harder to tug rates lower.
The Fed could provide insight about how close it is to adding commercial mortgage-backed securities to one of its recently announced efforts to revive credit.
Since the March meeting, Fed officials and analysts have pointed to signs that the decline in the economy, which is already the deepest and longest in decades, may be moderating.
“Today, the economy is still very weak, but there are some encouraging signs that support cautious optimism,” Atlanta Fed President Dennis Lockhart said in New York 17 April. Lockhart is a voting member on the Fed’s policy-setting panel this year.
Any fledgling optimism about the outlook could be influenced by the release early on Wednesday of the initial estimate of first-quarter gross domestic product, which measures the total output of goods and services within US borders from January through March.
Analysts’ median forecast is for the GDP to have fallen at an annual rate of 4.9% after tumbling 6.3% in the fourth quarter of 2008.
However, the report is expected to show a slight recovery in consumer spending after a collapse in the second half of 2008. Fed officials and analysts will also look for any signs the decimated housing sector is showing any signs of stabilizing.
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First Published: Wed, Apr 29 2009. 09 33 AM IST