Fed Likely To Stick With Low-rate Stance This Week
At the same time, consumer inflation as measured by the gauge the Fed most closely monitors remains well below its 2 percent target. That gauge rose just 1 percent in the 12 months that ended in March.
Analysts now think the Fed will keep the Fed's easy-credit policies unchanged, possibly for the rest of the year.
"The government's fiscal austerity is kicking in and hitting the economy hard," says Mark Zandi, chief economist at Moody's Analytics. "I am not looking for any change in Fed policy at this meeting, not with this weak growth and low inflation."
After years of debate, the Fed in January 2012 followed the lead of many other central banks around the world in establishing an inflation target of 2 percent. The Fed's goal is to keep price changes from hurting the economy.This could occur if inflation raged out of control or if the opposite problem â¿¿ deflation â¿¿ emerged. Deflation is a prolonged drop in wages, prices and the value of assets like stocks and houses. The United States last suffered serious deflation during the Great Depression of the 1930s. But Fed policymakers think the risks of deflation can rise as inflation dips below 2 percent. They want to avoid following the path of Japan, which has struggled with weak growth and deflation for more than two decades. Economists don't think the latest economic data will lead the Fed to step up the size of its bond purchases. But they say the figures should embolden the majority of officials who back Chairman Ben Bernanke's commitment to keep borrowing rates down until the economy shows sustained improvement â¿¿ as long as inflation stays low. "The Fed can't wink, scratch its nose, wiggle its ears or do anything that would signal they are about to change policy from what they are doing now," says Brian Bethune, an economics professor at Gordon College in Wenham, Mass. "That would be totally premature."
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