A powerful US central bank panel, led by Federal Reserve Chairman Ben Bernanke, is widely expected to keep its key interest rate unchanged in the coming week amid growing economic uncertainty.
Most economists are betting that the Federal Open Market Committee (FOMC) will keep the federal funds rate firmly anchored at 2 percent amid lackluster economic growth.
Analysts say the Fed is caught between a rock and a hard place because a cut in rates could trigger fresh inflationary pressures while a rate hike could strangle fragile economic momentum.
Thus, Bernanke and his fellow central bankers are expected to sit on their hands during a policy meeting set for tomorrow.
“I think the Fed is going to stand on the sidelines holding at 2 percent. We’re getting a very mixed economic picture right now,” said Scott Anderson, an economist at Wells Fargo.
Anderson said the world’s biggest economy is throwing off mixed signals which makes it likely that the Fed will not want to make any rash rate calls.
Official data revealed that the economy grew at a 1.9 percent pace in the second quarter which marked an improvement from the first three months of the year, but the economy got a timely boost from a giant US$168 billion emergency stimulus.
The US unemployment rate meanwhile ticked up to 5.7 percent last month, another government survey showed. Economists say job losses this year are not as bad as in prior recessions, but the unemployment rate is now at a four-year peak.
Some analysts believe the country’s US$14 trillion economy has already slumped into a recession — the government revised its tally for last year’s fourth-quarter growth last week to a negative 0.2 percent — but others say the economic picture is not so dire and that a recession will be avoided.
If market predictions come true, the Fed will keep rates on hold for a second straight time tomorrow after slashing rates aggressively by 3.25 percentage points between last September and late April.
The Fed is unlikely to raise rates until the housing market stabilizes, especially as consumers are cutting back on purchasing.
“The Fed will do nothing next week. Fed will keep Fed funds at 2 percent, voice its concern about the longer term inflation threats from commodity prices,” said John Lonski, the chief economist at Moody’s Investor Service.
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