US Federal Reserve Chairman Ben Bernanke and his colleagues may indicate the US recovery is gaining strength while repeating a pledge to keep the benchmark interest rate almost at zero for an “extended period.”
The Federal Open Market Committee (FOMC) gathers as growth in the final quarter of the year accelerates to more than 4 percent, the fastest pace in almost four years, according to analysts’ forecasts.
The FOMC will probably discuss how to eventually withdraw unprecedented programs to revive credit, including purchases of US$1.43 trillion in housing debt, economists said.
In a statement yesterday, Fed officials were expected possibly to head off investor expectations that the improving economy would prompt them to raise interest rates early next year.
While acknowledging that job losses are easing after last month’s drop in the unemployment rate, the FOMC could reaffirm that tight credit and weak income growth are among the risks to the recovery.
CONFIDENCE
“The last thing they want is for people to expect that tightening is closer,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. “They are going to increase their confidence about the sustainability of the expansion, but not become materially more optimistic about growth next year.”
The FOMC was scheduled to issue the statement at around 2:15pm after the end of its two-day meeting.
“Assuming they don’t drop ‘extended period,’ market reaction will probably be limited,” said James O’Sullivan, chief economist at MF Global Ltd in New York.
Macroeconomic Advisers raised its forecast for fourth-quarter growth last week to a 4.2 percent annual pace from 3.1 percent, while Credit Suisse and JPMorgan Chase & Co increased its estimate by 1 percentage point to 4.5 percent.
Retail sales last month climbed twice as much as economists had expected, while exports rose to the highest level in 11 months, government figures showed.
‘TWO BATTLES’
“The Fed has to fight two battles: supporting economic growth and showing the market it is concerned about potential inflation later on,” said Sung Won Sohn, former chief economist at Wells Fargo & Co and now a professor at California State University-Channel Islands in Camarillo, California. “Balancing inflation and economic growth and the communications related to that will be their most difficult challenge.”
Fed funds futures on the Chicago Board of Trade indicated on Tuesday a 53 percent chance that the FOMC will raise its main lending rate by at least a quarter-percentage point by its June meeting, compared with 35 percent odds a month ago.
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