Fed likely to back low-rate policies
The U.S. economy is strengthening on the fuel of more job growth, rising home prices and solid retail sales. Just don’t expect the Federal Reserve to let up in its drive to keep stimulating the economy with record-low interest rates.
Not yet, anyway.
That’s the view of economists as Fed policymakers have a two-day meeting that started Tuesday. Today, the Fed will issue a policy statement and update its economic forecasts, and Chairman Ben Bernanke will have a news conference.
All of which likely will reinforce Bernanke’s stated view that the job market, in particular, has a long way to go to full health and still needs the Fed’s extraordinary support.
The unemployment rate, at 7.7 percent, remains well above the 5 percent to 6 percent range associated with a healthy economy. The Fed has said it plans to keep short-term rates at record lows at least until unemployment falls to 6.5 percent, as long as the inflation outlook remains mild. And it foresees unemployment staying above 6.5 percent until at least the end of 2015.
Today, economists think Bernanke will acknowledge the economy’s gains. But most foresee no pullback in the Fed’s strategy of keeping short-term rates at record lows and of buying $85 billion a month in Treasurys and mortgage bonds to keep long-term loan rates down.
“They will keep the pedal to the metal at this week’s meeting,” says Diane Swonk, chief economist Mesirow Financial. “Even though the economy has improved, it has not improved enough to switch course. We still don’t have unemployment low enough.”
The economy slowed to an annual growth rate of just 0.1 percent in the October-December quarter, a near-stall that mainly was due to temporary factors that largely have faded. Economists think growth has rebounded in the January-March quarter to an annual rate around 2 percent or more. The most-recent data support that view.