Fed likely to continue easy money policy as economy on revival path

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: Federal Reserve officials on Wednesday may indicate their $1 trillion injection into the economy is helping to revive growth without requiring an increase in interest rates from near zero, economists said.

Policy makers will probably maintain their commitment to keeping rates low for an “extended period,” said Laurence Meyer, vice-chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. They may also start a discussion about altering the wording of their policy statement, to leave them more leeway to signal a change in the future.

Chairman Ben S Bernanke and his colleagues are reluctant to raise rates until the labour market shows signs of recovery, even though a report last week showed the economy resumed growth after 12 months of contraction. The Fed isn’t yet willing to signal that it’s ready to join central banks in Australia, Norway and Israel in pushing borrowing costs higher.

“They’ve got, for a lot of reasons, to say that it looks like what we’ve been doing has been working,” said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc in Vineland, New Jersey. “But if they’re too exuberant about it, it’s going to trigger expectations of a policy move quicker than perhaps they might like to do.”

Members of the Federal Open Market Committee, whose two-day meeting ends today, may be concerned any hint of a change in policy would prompt investors to sell Treasury bonds, sending rates higher on consumer and business loans and endangering the recovery, analysts said. A statement is due around 2:15 pm.

The Fed, while trying to pull the economy from its worst recession since the Great Depression, has held the benchmark lending rate close to zero since December while using asset purchases as its main policy tool. The unprecedented monetary stimulus helped fuel 3.5% growth during the third quarter. Much of the expansion stemmed from the government incentives for the purchase of cars and homes that boosted consumer spending, which accounts for about 70% of the economy. Excluding sales, production and inventories of automobiles, the economy grew 1.9% last quarter.