Fed seen holding rates, policy steady
With some hints the U.S. economy's deep swoon is easing, Federal Reserve policy-makers are expected to hold off on new measures to flood the economy with money when they conclude a two-day meeting on Wednesday.
The Fed's interest-rate setting Federal Open Market Committee resumed its meeting at around 9 a.m. EDT, a spokesperson for the U.S. central bank said. The Fed will issue a statement assessing the health of the world's largest economy and outlining its policy prescriptions at about 2:15 p.m. EDT.
With things going according to plan for once, the FOMC has no need to conjure up some new liquidity tool to show that it is on the job, economists at Wrightson ICAP in Jersey City, New Jersey wrote in a note to clients.
The U.S. central bank chopped the benchmark overnight federal funds rate to a zero to 0.25 percent range in December and appears certain to hold it there again on Wednesday.
It also is likely to restate its commitment to keeping rates exceptionally low for an extended period, and to use all available tools in its campaign to combat the painful recession and paralyzing credit crunch.
Just before policy-makers resumed their meeting, a Commerce Department report showed U.S. gross domestic product shrank at a faster-than-expected 6.1 percent annual rate in the first quarter.
The Fed stunned markets in March with aggressive measures to boost lending even with its rate-cutting ability spent, committing to buy $300 billion in longer-term Treasury securities and expanding its purchases of debt and mortgage-backed securities issued by government-sponsored mortgage enterprises by $850 billion.
Investors will watch for any sign the Fed is considering increasing its Treasury purchase program further. The initiative aims to lower borrowing costs, but with yields on the benchmark Treasury 10-year note hovering near 3 percent, some analysts believe officials will try harder to tug rates lower.
The Fed could also provide insight about how close it is to adding commercial mortgage-backed securities to one of its recently announced programs to revive credit.
Since the March meeting, Fed officials and analysts have pointed to signs that the pace at which the economy is declining may be moderating. The GDP report, while much weaker than expected, showed consumer spending turned higher.
Today, the economy is still very weak, but there are some encouraging signs that support cautious optimism, Atlanta Federal Reserve Bank President Dennis Lockhart said on April 17. Lockhart votes on the Fed's policy-setting panel this year.
(Reporting by Mark Felsenthal; Editing by Andrea Ricci)
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