Fed to ponder more stimulus as growth slows
Published 03/08/2011 | 05:00
FEDERAL Reserve policy makers may start weighing up additional steps to prop up the US recovery after growth fell below 1pc in the first half of the year and economists began cutting second-half growth forecasts.
"At a minimum, the FOMC (Federal Open Market Committee) will have a serious debate about the policy options -- what they should do and what they expect to get from it," said Roberto Perli, a former associate director in the Fed's Division of Monetary Affairs.
"Growth in the first half was dangerously close to zero," said Mr Perli, director of policy research at International Strategy and Investment Group.
The FOMC will meet next Tuesday after the US government marked down its measure of growth to annual rates of 0.4pc in the first quarter and 1.3pc in the second, casting doubt on the Fed's June outlook of 2.7pc to 2.9pc for this year.
A gauge of US manufacturing slumped last month to the lowest level in two years.
Fed chairman Ben Bernanke said in July that the Fed may take new action if the economy stalls, including beginning a third round of bond purchases.
The central bank could also cut the interest rate it pays banks on excess reserves and pledge to hold its assets at a record high and interest rates at record lows for a longer period, he said.
However, any effort by Bernanke to expand the Fed's $2.87 trillion balance sheet would probably meet resistance from Fed presidents, including Philadelphia's Charles Plosser, who have already said that bond purchases and low borrowing costs have pushed up long-term inflation risks to levels that are too high. (Bloomberg)