divided fed meets to discuss battle plan
Last Updated : GMT 11:57:28
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Divided Fed meets to discuss battle plan

Arab Today, arab today

Arab Today, arab today Divided Fed meets to discuss battle plan

Washington - AFP

The Federal Reserve is not expected to declare any strong steps to boost the economy Wednesday even as high joblessness, weak consumer spending and the lifeless housing sector boost arguments for more stimulus. But minor adjustments to policy could emerge at the end of the two-day meeting that could aim at shoring up the confidence of businesses to invest and hire over the long term. With economic growth tepid but not slowing, the central bank\'s policy committee, the Federal Open Market Committee (FOMC), has been divided over whether more stimulus is merited, with a handful of members warning that the return of higher inflation is the greater danger. Analysts think the Fed will remain more focused on the economy\'s deep weaknesses -- especially sluggish job creation -- and seek to send a strong signal as to how long it will try to keep interest rates at their current ultra-low level. The main indicator could be the Fed\'s new forecasts for economic growth, through 2014, analysts say. \"It will be interesting to see how those pan out, as the staff has talked in the minutes (of the previous FOMC meeting) about lower and lower expectations for growth, but third-quarter GDP was so much better than expected,\" said Chris Low of FTN Financial Group. Last week the government\'s first estimate of third-quarter gross domestic product growth, at 2.5 percent, was nearly double the prior quarter\'s rate, surprising most analysts. But it was still not seen as strong enough to begin reeling in any stimulus measures. The FOMC policy statement, to be released at 1630 GMT, will follow releases of private-sector October jobs statistics early Wednesday that showed a decline in planned job cuts and a slower increase in job creation. The latest data offered no sign of significant improvement in the distressed labor market, where the unemployment rate stood at 9.1 percent for the third straight month in September. The Fed has limited tools to boost the economy: its key interest rate has been locked at 0-0.25 percent for nearly three years; it has pumped hundreds of billions of dollars into the economy, via bond purchases, to push down lending rates; and it has promised to keep interest rates low through mid-2013. At the September FOMC meeting, its conventional arsenal limited, the Fed announced it would shift $400 billion in shorter-term bond holdings to longer-term ones, with the aim of lowering long-term interest rates. It also said it would invest in mortgage-backed securities, a move aimed at stimulating the housing market. In recent weeks the debate though has been how to strengthen its rate policy signals to the market -- including setting a target rate for economic growth -- with the aim of giving skittish businesses the confidence to make long-term investment and hiring decisions. The Fed could decide to express an explicit inflation or nominal GDP growth target, said Ryan Sweet at Moody\'s Analytics. \"The other option is assigning specific economic conditions to its forward monetary policy guidance, a step for which there is growing support,\" he said. \"Both changes would be significant and would have to be implemented with care not to muddle the Fed\'s objectives or damage its credibility.\" But with Europe on edge Wednesday over the fate of its latest eurozone debt crisis plan, agreed last week but now in doubt due to Greek politics, whatever the Fed decides Wednesday could be overshadowed by how things play out on the other side of the Atlantic. Also holding Fed policy hostage is the looming deadline, late this month, of the bipartisan congressional \"supercommittee\" tasked with finding more ways to reduce the US deficit over the medium term. Under the law which created the committee, if its Republicans and Democrats fail to bridge their differences and come up with a plan, the government will be forced to immediately launch into deep spending cuts that economists warn could send the economy back into recession.  

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