|Fed-watchers expect bond buying to continue until March
Renewed questions about the US economy's health and uncertainty surrounding the government's budget fight will likely lead the Federal Reserve to maintain the pace of the stimulus it is supplying to the economy.
That expectation marks a reversal from just six weeks ago, when almost everyone expected the Fed to start trimming its US$85 billion in monthly bond purchases. The bond buying is intended to keep long-term interest rates low to help the economy rebound from the Great Recession, AP reports.
The Fed will announce its decision in a statement after a two-day policy meeting.
Few think the Fed will reduce its stimulus any time soon. Many analysts now predict the Fed will maintain the pace of its bond purchases into next year.
“I think March is now the earliest that any reduction in bond purchases will happen,'' said Diane Swonk, chief economist at Mesirow Financial.
By then, Fed members expect to have seen several months of stronger job growth. They also expect Congress to have resolved its budget impasse.
If the Fed does start slowing its stimulus in March, it will have left its policy unchanged not just this week but also at its next meeting in December and at its subsequent meeting in late January.
The January meeting will be the last for Chairman Ben Bernanke, who is stepping down after eight years. US President Barack Obama has chosen Vice Chair Janet Yellen to succeed Bernanke.
Assuming that Yellen is confirmed by the Senate, her first meeting as chairman will be in March. Many economists think no major policy changes will occur before a new chairman takes over.
This week's meeting is the first since Obama announced October 9 his choice of Yellen to be chairman. David Jones, chief economist at DMJ Advisors and the author of several books on the Fed, said her status could change the dynamics.
“Bernanke is essentially a lame duck, and Yellen has not yet taken over,'' Jones said. ``It will make the Fed more cautious.''
Yellen is still expected to win Senate confirmation, but a vote by the full Senate may not come until January. The Senate Banking Committee is considering holding a hearing on the nomination November 14.
Once the Fed starts trimming its bond purchases, economists foresee reductions of US$10 billion to US$20 billion a month as long as the economy improves consistently. Some analysts think the Fed could finish its purchases by the end of 2014.