US Fed set to launch fresh bond buying to help economy

Dec 05 2012, 13:54 IST
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Many economists think the U.S. central bank will announce monthly bond purchases of $45 billion. (Reuters) Many economists think the U.S. central bank will announce monthly bond purchases of $45 billion. (Reuters)
SummaryMany economists think the U.S. central bank will announce monthly bond purchases of $45 billion.

efforts to stimulate growth until it sees a substantial improvement in the outlook for the U.S. labor market.

THRESHOLDS

However, it has not spelled out exactly what that means and is not likely to use next week's meeting to act on an idea advanced by some senior Fed officials to adopt numerical thresholds for unemployment and inflation to guide policy. These have been floated as a better way to give markets and the public so-called forward guidance on when the Fed will start raising rates, rather than its current calendar date commitment. The idea is to create a tolerance zone within which the Fedwould leave rates on hold. But economists think it would prefer not to risk confusing markets by making too many big announcements when its release its policy decision Wednesday,

expected at 1 2:30 p .m ET (1230 GMT). The statement will be follo wed by a news conference with Fed Chairman Ben Bernanke. Analysts also doubt policymakers have had enough time to

reach a consensus on measures that amount to a major step forward for the central bank's communication strategy that would influence Fed policy for years to come.

"At this point, I'd be a little surprised if they had actually managed to reach agreement about what the quantitative thresholds should be," said David Stockton, senior fellow at the

Peterson Institute for International Economics in Washington. Both Bernanke and Vice Chair Janet Yellen have indicated support for the idea, which has been advanced by several of

their colleagues. But analysts felt it made more sense to take the step in the early part of next year and concentrate on explaining the decision to increase asset purchases at the news conference next

week. Policymakers must also update quarterly economic forecasts despite uncertainty over how much of a drag fiscal policy will exert on growth as Congress and the Obama administration fight over taxes and spending designed to lower the U.S. Deficit. Failure to agree on a deal could tip the economy over a so-called fiscal cliff of tax hikes and automatic spending cuts, which many fear could trigger another U.S. recession, and which the Fed has repeatedly said it would not be able to offset.

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