Fed to keep easy credit flowing for weak economy

Tuesday, April 28, 2009 at 9:32 PM Posted by Beijing News


The Federal Reserve concludes a two-day meeting Wednesday widely expected to keep boosting the supply of cheap credit to support a struggling economy showing only tentative recovery signs.

The Federal Open Market Committee FOMC meeting comes amid a somewhat less bleak economic backdrop, with improvements in the troubled US housing market and consumer confidence.

But Fed members will see a stark reminder of the depth of the recession with data due early Wednesday on first-quarter US economic output -- expected to show a 4.9 percent contraction at an annual pace after the fourth-quarter drop of 6.3 percent.

Analysts say this week's meeting is likely to signal no change in policy since the FOMC March gathering, when the Fed added over one trillion dollars to its arsenal to fight the economic crisis.

The FOMC statement due Wednesday is expected to depict a weak economy that still needs extraordinary support, justifying its policy of near-zero interest rates and vast lending facilities to pump up credit availability.

Joseph Brusuelas at Moody'ssaid he expects no additional stimulus efforts from the Fed but no backing away from programs already announced.

The FOMC "will restate its commitment to keep the federal funds rate between zero and 0.25 percent for an extended period," he said.

"However, the monetary statement will account for modest improvement in economic conditions, and the meeting will focus on ending the quantitative easing program once the economy enters recovery."

Fred Dickson, market strategist at DA Davidson & Co, said the Fed may seek to "temper expectations held by a growing number of investors that the economy is about ready to bottom out and turn the corner."

On Tuesday, a survey by the Conference Board showed US consumers turned considerably more confident in April, with more seeing a bottom taking shape in the recession-stricken economy.

The business research group's consumer confidence index, based on a representative sample of 5,000 US households, leapt to 39.2, up from a revised 26.9 in March, a gain of nearly a point from that month's initial estimate.

In another instance of data not as bad as feared, the Standard & Poor/Case-Shiller index showed an 18.6 percent year-over-year decline in home prices in 20 major metropolitan areas, or a 2.8 percent decline from January levels.

Despite the further drop, S&P said February was the first in 16 months the index did not see a new record drop.

The report was consistent with other data suggesting stabilization in the housing market after two horrific years.

But S&P analyst David Blitzer said, "We will certainly need a few more months of data before we can determine if home prices are finally turning around."

At the conclusion of its March 17-18 meeting, the Fed said it would buy up to 1.2 trillion dollars in government and agency debt in an effort to bring down a variety of interest rates it does not control.

Fed chairman Ben Bernanke, who calls the effort "credit easing" instead of quantitative easing, nonetheless acknowledges the effort to effectively print vast amounts of money to help lift the economy out of its worst crisis in decades.





03 Contemporary Art by the Sea exhibition in Belgium. REUTERS/Thierry Roge

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