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Fed to strike upbeat note on US economy
Published in Saudi Press Agency on 16 - 12 - 2009

Focused on keeping the recovery going and driving down double-digit unemployment, the Federal Reserve is poised to leave interest rates at a record low, AP reported.
Fed Chairman Ben Bernanke and his colleagues resumed a two-day meeeting Wednesday. At the end of the meeting, the Fed will likely to strike an upbeat note about the progress the U.S. economy is making. But they"ll also caution that now is not the time to be complacent against risks.
Signs are growing that the economy is on the mend. Consumers and businesses are spending again. The housing market is stabilizing. Manufacturing is growing. And layoffs are moderating.
But there"s much uncertainty about how the recovery will fare next year after government stimulus starts to fade. Loans are also still difficult for many people and businesses to get, a force putting a damper on an energetic economic rebound.
Against that backdrop, the Fed is all but certain to keep the target range for its bank lending rate at zero to 0.25 percent, where it"s stood since last December.
The Fed also is likely to retain a pledge first made in March to hold rates at such levels for «an extended period.»
In response, commercial banks" prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That"s its lowest point in decades.
Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They"re especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.
Tight credit is clobbering small businesses, normally an engine of job creation during economic recoveries. That"s crimping their ability to hire and expand.
Many small businesses rely on smaller banks for credit. But troubled commercial real estate loans are concentrated at those banks. That"s hobbled the flow of credit. At a White House meeting Monday, President Barack Obama urged top bankers to increase lending to small businesses. Afterward, some banks pledged to do so.
The central bank also isn"t expected to make any major changes to a program, set to expire in March, to help further drive down mortgage rates.
For now, the Fed has leeway to hold rates at record lows because inflation isn"t in danger of getting out of control.
A government report out Wednesday showed that more expensive energy costs lifted overall consumer prices last month. But most other prices were in check. Energy prices are already in retreat.
Still, a big question is whether the Fed 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 figure prominently during the closed-door discussions.
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 money. Some worry that the Fed"s cheap-money policies will stoke inflation.
A government report out Tuesday showed that wholesale prices shot up last month, but most economists think it will prove fleeting.
Federal Reserve Chairman Ben Bernanke repeated his belief that slack in the economy _ meaning plants operating below capacity and the weak employment market _ will keep inflation under wraps.
«The bulk of evidence indicates that resource slack is now substantial,» Bernanke wrote, in a letter released Tuesday. The Fed chief was responding to wide-ranging questions posed earlier this month by Sen. Jim Bunning, a Kentucky Republican.
Some encouraging signs for the economy have emerged lately. The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year.
The U.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.
Thus, keeping rates low «is still central to the Fed"s economic game plan,» said Greg McBride, analyst at Bankrate.com. «Even a better than expected November employment report may prove to be a one-hit wonder and won"t be enough to shift the Federal Reserve away from a cautious economic tone.»


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