US Federal Reserve statement on pace of bond purchases awaited

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SummaryInvestors are waiting to see whether one of Ben Bernanke's final acts as chairman of the Federal Reserve will be to announce a pullback in the U.S. central bank's bond purchases. The purchases have been intended to keep long-term loan rates low to spur economic growth.

Investors are waiting to see whether one of Ben Bernanke's final acts as chairman of the US Federal Reserve will be to announce a pullback in the central bank's bond purchases. The purchases have been intended to keep long-term loan rates low to spur economic growth.

It's a close call.

But most economists think that when the US Federal Reserve's latest policy meeting ends Wednesday, it will announce that it's maintaining its pace of $85 billion a month in bond purchases despite a drop in unemployment to 7 percent and other improving economic data.

One factor in the Fed's hesitance to reduce its stimulus is that inflation remains historically low. The Fed's optimal rate is 2 percent. For the 12 months ending in October, consumer inflation as measured by the Fed's preferred index is just 0.7 percent, well below its target. The Fed is as concerned about under-shooting the inflation target as over-shooting it. Both are seen as threats to the economy.

On Wednesday, Bernanke will also give his final quarterly news conference. His second four-year term as chairman ends Jan. 31, when Vice Chair Janet Yellen will likely succeed him. The Senate is expected to approve Yellen's nomination this week.

Most analysts think the Fed will start trimming its bond purchases at one of its next two meetings, either in January or March.

The decision carries high stakes for individuals, businesses and global financial markets. A pullback in the bond buying would likely send long-term rates up and stock and bond prices down.

That the Fed is even considering slowing its stimulus is testament to the economy's improvement. Hiring has been robust for four straight months. Unemployment is at a five-year low of 7 percent. Factory output is up. Consumers are spending more at retailers. Auto sales haven't been better since the recession ended 4{ years ago.

What's more, the stock market is near all-time highs. Inflation remains below the Fed's target rate. And the House has passed a budget plan that seems likely to avert another government shutdown next year. The Senate is expected to follow suit.

''It really feels like the economy has finally hit escape velocity,'' said Mark Zandi, chief economist at Moody's Analytics, citing a term Bernanke has used for an economy strong enough to propel growth and shrink unemployment without the Fed's extraordinary help.

Still, only one-fourth of more than three dozen economists surveyed

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