Fed Likely To Stick With Low-rate Stance This Week
Bethune says the Fed needs to be especially cautious in signaling any policy shift because the U.S. economy has been serving as a global engine of growth. Many European countries are still struggling to escape a recession that followed the region's debt crisis.
"Anything the Fed did that could disrupt things or create uncertainty could tip the whole global economy back into recession," Bethune says.
Few expect the central bank to start raising short-term rates before late 2015 or early 2016. And many economists think the Fed will keep buying $85 billion in bonds each month for the rest of this year, before starting to curtail its purchases in early 2014.
Still, some analysts say that if the economy emerges from a slowdown caused in part by the government cuts and starts accelerating, the Fed might taper its bond purchases by fall.Whenever the Fed does decide to signal a potential pullback of its aggressive credit easing, after a long period of record-low rates, analysts say the shift could jolt investors. "No one can predict how much financial market instability we are likely to get when the Fed finally begins pulling back," Jones says.
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