Fed May Signal U.S. Economic Recovery Has Started

Federal Reserve officials may signal that the U.S. economy has started to recover while maintaining their pledge to keep the benchmark interest rate near a record low for an “extended period.”

Policy makers meet as analysts project 2.9 percent growth in the quarter ending this month, compared with a 1 percent estimate in July. Officials will probably debate their purchases of $1.45 trillion in housing debt, including whether to extend the emergency program into 2010, analysts said.

Chairman Ben S. Bernanke and his colleagues may seek to contain any investor expectations that they will begin raising interest rates as soon as this year by citing risks to the economic recovery. Today’s Fed statement may retain references from last month to rising unemployment and tight” credit as constraints on consumer spending.

The Federal Open Market Committee, which resumed discussions this morning, is scheduled to issue its statement at around 2:15 p.m. after the end of its two-day meeting in Washington.

The Fed has kept the benchmark lending rate at a range from zero to 0.25 percent since December and has adopted asset purchases as its main policy tool. In its August statement, the FOMC said exceptionally low” rates are likely warranted for an extended period.”

Central bank officials may also discuss changing the size and duration of their plan to buy as much as $1.25 trillion of mortgage-backed securities and $200 billion of agency debt by the end of this year, said former Fed governor Laurence Meyer, now vice chairman of St. Louis-based Macroeconomic Advisers LLC.

Three district bank presidents -- Jeffrey Lacker of Richmond, James Bullard of St. Louis and Dennis Lockhart of Atlanta -- raised the possibility that the Fed may not spend all the money authorized for the mortgage-backed debt. New York Fed President William Dudley, by contrast, stressed an exit would be premature,” citing high unemployment and weak growth.

Fed May Signal U.S. Economic Recovery Has Started

TradingEconomics.com, Bloomberg
9/23/2009 10:13:12 AM