Fed Likely To Stick To Low-rate Message This Week
By MARTIN CRUTSINGER
WASHINGTON (AP) When the Federal Reserve meets this week, it's likely to affirm a message it intends to help lift the economy: that consumers and businesses will be able to borrow cheaply well into the future even after unemployment has dropped sharply.
Last month, the Fed signaled for the first time that it will tie its policies to specific economic barometers. It said that as long as the inflation outlook is mild, it could keep short-term rates near zero until unemployment dips below 6.5 percent from the current 7.8 percent.
That could take until the end of 2015, the Fed predicted last month.The Fed's guidance was designed to give consumers, companies and investors a clearer sense of when super-low borrowing costs might start to rise. Though some key sectors of the economy are improving, analysts think the Fed still feels more time is needed for low rates to spur borrowing, spending and economic growth. One reason is that many Americans remain anxious about the budget impasse in Washington. "The Fed is dealing with a lot of uncertainty right now, with all the decisions still to be made on federal budget policy," said Diane Swonk, chief economist at Mesirow Financial, who expects the Fed to make no changes in its support programs when its two-day policy meeting ends Wednesday. At its December meeting, the Fed said it would keep spending $85 billion a month on bond purchases to keep long-term borrowing costs down. It will continue its bond purchases until the job market improved "substantially." When it buys bonds, the Fed increases its investment portfolio and pumps more money into the financial system something critics say could eventually ignite inflation or create dangerous bubbles in assets like real estate or stocks. On Friday, when the government will release its jobs report for January, unemployment is expected to remain 7.8 percent. That still-high rate, 3½ years after the Great Recession officially ended, helps explain why the Fed has kept its key short-term rate at a record low near zero since December 2008, just after the financial crisis erupted.
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