Arab Today, arab today fed meets under gun to act on weak us economy
Last Updated : GMT 08:19:34
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Fed meets under gun to act on weak US economy

Arab Today, arab today

Arab Today, arab today Fed meets under gun to act on weak US economy

Washington - AFP

The Federal Reserve\'s policy board began a two-day meeting Wednesday to weigh a fresh response to the weak US economy and stagnant jobs market. The dollar fell against the euro and stock markets rose amid anticipation that the Federal Open Market Committee would decide on some form of monetary easing action. Options, analysts said, include a strong verbal statement by the FOMC committing themselves to holding their benchmark interest rate at the current near-zero level through 2015. But also possible is the launch of \"QE3\", a huge \"quantitative easing\" bond-buying program aimed at further depressing long-term interest rates. \"The Fed has made it clear that some form of easing will take place at its meeting this week. There seems little doubt that the easing will entail a strengthening of its verbal guidance on the low-for-long policy,\" said Peter Hooper and Torsten Slok of Deutsche Bank. \"Whether we get another dose of QE announced now is close to a toss-up,\" they added. Pressure has been building for new action by the FOMC for months as economic growth sank to 1.7 percent in the second quarter and looks possible to fall below the 2.0 percent level in the third. Macroeconomic Advisors said, based on the available data so far, and especially with the impact of the drought across the US Midwest, that economic growth appears to be on a 1.5 percent pace for the third quarter. But the 12 members of the committee have remained divided on whether the economy is weak enough to merit more action. Fed Chairman Ben Bernanke made clear on August 31 that he backs new monetary easing efforts, in a speech to central bankers in Jackson Hole, Wyoming. He called growth tepid and honed in on the unemployment rate, which has stayed stuck above 8 percent all year, with little significant reduction in the number of jobless. \"The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.\" Bernanke\'s view earned support on Friday when national data for August showed a poor level of jobs created during the month -- only 96,000 -- and also that some 368,000 people gave up searching for jobs and left the labor force. At the same venue Bernanke also defended the previous QE programs, including the $600 billion QE2 bond-buying program of 2010-2011. Such actions \"may have raised the level of output by almost three percent and increased private payroll employment by more than two million jobs, relative to what otherwise would have occurred,\" he argued. But some analysts said the FOMC is not likely to go for a third QE operation, at least for the moment. Michael Gregory, an economist at BMO Capital Markets, said it is not necessary yet. \"QE3 is definitely on the table, but employing it now would imply a shift in the Fed\'s policy formation process,\" he said, adding that taking the move now could spark controversy in the final leg of the hotly contested presidential race. \"QE is only a matter of time; it\'s just not this time.\"

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