Nurturing a nascent recovery, Federal Reserve policymakers are sure to leave a key interest rate at a record low and probably will keep other economic supports in place.
Fed Chairman Ben Bernanke and his colleagues are slated to wrap up a two-day meeting this afternoon, when they are expected to announce that the recession is likely over and that the nation’s economic and financial climate is improving. But they’ll also warn that rising unemployment, and still hard-to-get-credit for many people and companies, will make for a plodding rebound.
“We’re kind of in an economic purgatory right now. We’re in a recovery but it won’t feel like one to Main Street,” said Stuart Hoffman, chief economist at PNC Financial Services Group. “There’s still a lot for the Fed to do to foster a lasting economic recovery.”
Bernanke last week said the recession is “very likely over,” his most optimistic assessment in months. And with the economy turning a corner, the central bank will examine the effectiveness of emergency programs to encourage spending and borrowing — critical ingredients to underpin the rebound.
Of great interest is whether the Fed will make any changes to a program intended to lower rates on home mortgages and support the housing market.
Not wanting to pull the plug too soon and risk short-circuiting progress, the Fed could opt at Wednesday’s meeting — or perhaps later this year — to extend the program, some analysts said. The Fed’s current goal is to buy $1.45 trillion in mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac by year-end. Roughly $775 billion has been bought so far.
The Fed also could gradually reduce the size of its purchases. At its previous meeting in August, some Fed officials said a “tapering” of the mortgage-buying program “could be helpful,” according to minutes of the private deliberations. Or the Fed could leave the program alone, as many anticipate.
The housing market has been propped up by the Fed’s program. Rates on 30-year home loans dropped to 5.04 percent last week, compared with 5.78 percent a year earlier, Freddie Mac says. But the housing sector’s health remains precarious as foreclosures continue to mount. (AP)
