Fed seen launching fresh stimulus

WASHINGTON—The Federal Reserve appears set to launch a third round of unconventional monetary stimulus on Thursday while signalling that a weak economy may warrant ultra-low interest rates for at least another three years. Not everyone believes the Fed will embark on another bond-buying spree, and plenty of doubts remain about the likely efficacy of such a move. But Fed Chairman Ben Bernanke has made clear the central bank will not sit idly by while unemployment, currently at 8.1 per cent, remains so far above levels consistent with a healthy economic recovery. Bernanke’s comments and disappointing data on the job market have left many economists confident the Fed’s policy-setting Federal Open Market Committee will deliver a third round of quantitative easing, or QE3. On median, they see a 60 per cent chance, according to a Reuters poll.

 

The FOMC will announce its decision at about 12.30 pm EDT (1630 GMT) at the close of a two-day meeting. “The market is firmly in the camp that the FOMC will deliver; it’s just a question of how much,” said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. Indeed, the likely details of any decision to purchase bonds—including the size and composition of any new asset purchase plan—are the subject of heated debate.

Many economists see the Fed leaning toward an open-ended bond-buying programme that is conditional on the path of the economy, rather than lump-sum amounts with pre-established end dates as done in the past.

This could help carry the economy through the looming risks of a deeper European debt crisis and the looming tax break expirations and government spending cuts known as the US fiscal cliff. Many economists believe businesses have already retrenched out of fear the economy could hit the shoals. (Reuters)