By MARTIN CRUTSINGER
WASHINGTON (AP) â¿¿ A combination of scant inflation and still-modest U.S. economic growth will likely lead the Federal Reserve this week to maintain its drive to keep borrowing costs at record lows indefinitely.
The Fed has said it plans to keep its key short-term interest rate near zero at least until the unemployment rate dips below 6.5 percent from its current 7.6 percent.
It's also been buying $85 billion a month in Treasurys and mortgage bonds to try to keep long-term borrowing rates down. The goal has been to energize the economy through more consumer and corporate borrowing.In recent months, many economists had suggested that the Fed might scale back its bond purchases in the second half of 2013 if job growth accelerated. But the jobs report for March was surprisingly weak. And inflation has been running below the Fed's target rate, allowing it to keep stimulating the economy without igniting price increases. "I am not looking for any major action from this meeting," says David Jones, an economist at DMJ Advisors. The Fed's interest rate-setting committee will begin a two-day meeting Tuesday and will issue a policy statement once its meeting ends Wednesday afternoon. The minutes of the Fed's last meeting in March suggested that some policymakers favored slowing and eventually ending its bond buying â¿¿ as long as the economy and the job market kept improving. Some feared that keeping rates too low for too long could escalate inflation, fuel speculative asset bubbles or unsettle markets once the Fed has to start raising rates or unloading its record $3 trillion investment portfolio. Early this month, though, the government said U.S. employers added only 88,000 jobs in March, far below the 220,000 average in the previous four months. Last week, it said the economy grew at an annual rate of 2.5 percent in the January-March quarter â¿¿ a decent growth rate but one that's expected to weaken in coming months because of federal spending cuts and higher Social Security taxes.