The Federal Reserve is expected to leave interest rates at a record low this week. The big question is whether Chairman Ben Bernanke and his colleagues will hint about when they will reverse course and start boosting rates.
Plans for reeling in the unprecedented amount of money the Fed has plowed into the economy to bolster the recovery are likely to dominate its discussions Tuesday and Wednesday.
The Fed is expected to announce its policy decisions on Wednesday afternoon.
The central bank faces a high-stakes challenge: If it removes the stimulus too soon, it could short-circuit the fragile recovery. But if it moves too late, it could unleash inflation or new speculative asset bubbles.
Bernanke, who’s seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates.
At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he’s prepared to sop up all the stimulative money. Some worry that the Fed’s cheap-money policies will unleash inflation.
At least one report out Tuesday could add to some of those concerns.
Wholesale prices jumped 1.8 percent in November, lifted partly by more expensive energy products, the Labor Department said. That was up sharply from a 0.3 percent gain in October and marked the largest one-month increase since August.
Stripping out energy and food, closely watched “core” prices rose 0.5 percent, the biggest increase in more than a year.
Meanwhile, the Fed reported that industrial production jumped 0.8 percent in November, the largest gain since August. Factories and mines boosted production solidly after cutbacks in October. Production at gas and electric utilities fell.
Even with the stronger-than-expected showing, activity is still down 5.1 percent from a year ago, showing that the industrial sector is far from running at top speed.
Some encouraging signs for the economy have emerged lately. The nation’s unemployment rate dipped to 10 percent in November, from 10.2 percent in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago.
Still, the Fed predicts unemployment will remain high because companies won’t ramp up hiring until they feel confident the recovery will last.
Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year. (AP)
