Balancing act is Fed’s job now
WASHINGTON — With unemployment likely to hit double digits this year, the Federal Reserve must strike a reassuring message this week: that it stands ready to take further steps to nurse the economy back to health, but also make clear that too much medicine could spur worries about inflation.
Some economists say that at the end of their two-day meeting Wednesday, Fed Chairman Ben Bernanke and his colleagues may say they will stretch out their purchases of government debt to avoid an abrupt end to that effort, now slated for August. Doing so could help avert possible market disruptions and help ease fears about a stimulative overdose that could trigger inflation.
"I think there’s a good chance the Fed will exert more flexibility in the timing of purchases to slow them down," said Michael Feroli, an economist at JPMorgan Economics.
What’s all but certain is that policymakers will hold a key lending rate to banks at a record low near zero. They also are likely to repeat a pledge to keep rates there for "an extended period."
Most economists say that means the Fed will keep the target range for its bank lending rate between zero and 0.25 percent through the rest of this year and probably into next online cash advance. That means commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will stay around 3.25 percent, the lowest in decades.
Most economists say the Fed won’t be inclined to boost its purchases of government debt or mortgage-backed securities at this week’s meeting, preferring to take time to assess the impact of its actions already taken.
There will be "no fireworks from the Fed," predicted Michael Darda, chief economist at MKM Partners. With unemployment expected to worsen and with factory production sagging, Darda said inflation is unlikely to sprout any time soon.
"Don’t expect the Fed to start laying the groundwork for tighter monetary policy" until there is sustained turnaround in factory and employment activity, he said.
And that will take awhile, because an eventual recovery is likely to be tepid. Still, Fed policymakers will continue to explore how and when to wean the economy off stimulative medicine to avoid fanning inflation.