Fed seen renewing low rates, extended period vow

Fed seen renewing low rates, extended period vow
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First Published: Tue, Mar 16 2010. 05 52 PM IST
Updated: Tue, Mar 16 2010. 05 52 PM IST
Washington: The US Federal Reserve is expected to hold interest rates near zero at a meeting on Tuesday and renew its pledge to keep borrowing costs very low for a long time, but could note a brightening economic picture and hint at being closer to dropping the vow.
The Fed began its meeting at around 8 am (1200 GMT), a Fed spokesperson said. A statement is expected around 2:15 pm (1815 GMT)
Analysts widely expect the central bank to say again that high unemployment and low inflation warrant holding borrowing costs “exceptionally low” for “an extended period.”
The Fed has held benchmark rates near zero since December 2008 to cushion the economy and help it recover from the most severe financial crisis in generations.
Economic recovery has shown signs of momentum, albeit uneven, in recent weeks, and markets will look closely at how the Fed characterizes the outlook for any signs that policy-makers may modify the low rate promise at the central bank’s next meeting in April.
The Fed could acknowledge gains in retail sales and signs labor market carnage continues to ease. Indications that consumers — a primary driver of the world’s largest economy — are starting to participate would be an important harbinger of recovery.
Early this month the Fed’s Beige Book summary of economic conditions around the country, based on data collected through late February, said economic activity strengthened modestly across most of the 12 Federal Reserve Districts.
Still, senior Fed officials have said in recent appearances that the recovery continues to be tepid and suggested rate increases are far off.
“Notwithstanding the positive signs, the job market remains quite weak,” Bernanke said in semi-annual monetary policy testimony before Congress on 25 February.
The Fed is also likely to note it plans to let its asset-buying programs end at the end of the month, but could leave the door open to more such purchases in the future in case another dose of medicine is needed for the economy.
The vast majority of primary dealers do not see any change in the Fed’s “extended period” language until April at the earliest. Most do not see an interest rate increase until the second half of this year.
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First Published: Tue, Mar 16 2010. 05 52 PM IST