US markets are expecting a further boost by Fed
Published 10/08/2010 | 05:00
SPECULATION was mounting last night that the US Federal Reserve will announce extra stimulus measures to boost the economy at its meeting in Washington today.
Traders were tentatively bullish and US and European stocks gained amid expectations that the Federal Reserve may pursue further monetary easing measures.
The Federal Reserve is set to downgrade its assessment of America's economic prospects when it meets to discuss ways to reboot the flagging recovery.
Faced with weak economic data and rising fears of a double-dip recession, the Federal Open Market Committee (FOMC) is likely to ensure its policy is not constraining growth and to use its statement to signal greater concern about the economy.
It is, however, unlikely to agree big new steps to boost growth.
"Given the rally we had on Friday, after the weak jobs report, it seems the markets are expecting something more from the Fed than just a zero rate policy," said Paul Nolte, managing director at Dearborn Partners in Chicago.
Investors will also examine closely any changes to the pledge made by the FOMC in June to "employ its policy tools as necessary to promote economic recovery and price stability", which could be hardened if policymakers choose to signal the potential for more aggressive moves to boost the economy in the future.
But even if that happens, most US economists believe that it would take several more months of poor data for the Fed to actually begin a new round of asset purchases on the scale that was carried out in the recession.
Last month, Ben Bernanke noted "unusual uncertainty" in the outlook and in a speech last week the Fed chairman warned of a "considerable way to go" before the US achieved a full recovery. (Reuters)