Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Fed preview: More stimulus unlikely for now, but watch Europe

November 1, 2011 |  8:21 pm

Federal Reserve policymakers are expected to signal Wednesday that they’re sitting on their hands for the time being.

Fed officials will conclude a two-day meeting with a statement at 9:30 a.m. PDT and with a press conference by Chairman Ben S. Bernanke at 11:15 a.m.

Most Fed-watchers believe the statement won’t include any new initiatives to help the economy, despite hints in recent weeks by some officials that the central bank could do more.

Recent market speculation has centered on the idea of the Fed printing money to buy another large chunk of mortgage-backed bonds. The idea would be try to push mortgage rates even lower, which could help spur home purchases and refinancings -- at least for people able to qualify for a loan.

Fed Vice Chairwoman Janet Yellen said on Oct. 21 that another large bond-buying program “might become appropriate if evolving economic conditions called for significantly greater monetary accommodation.”

Despite 9.1% unemployment, however, the economy overall isn’t weak enough to justify another big dose of monetary stimulus via so-called quantitative easing (QE), most economists say. Gross domestic product grew at a 2.5% real annualized rate in the third quarter, slow but not recessionary.

The Fed may not yet have pulled out all the stops, but it has pulled some big ones. In August the central bank took the unprecedented step of indicating that short-term interest rates were likely to remain near zero for another two years. In September the Fed decided to shift more of its massive securities portfolio toward longer-term Treasury bonds to pull down long-term interest rates in general.

“We continue to believe the bar for additional QE is high, as the Fed attempts to conserve its limited ammunition should developments in Europe collapse,” economists at brokerage UBS said in a report Tuesday.

And the Fed, and everyone else, has reason to worry that a European collapse is an increasing risk, after Greece’s latest bombshell Tuesday.

Europe’s seeming inability to end its government debt crisis should make for some interesting questions for Bernanke at his press conference. If the world were to face another 2008-style financial meltdown, what could the Fed do -- other than throw more money at it?


Construction spending and manufacturing growing -- slightly

Savings rate falls as spending outpaces income growth

Weekly jobless claims dip but remain high

-- Tom Petruno

Photo: Federal Reserve Chairman Ben S. Bernanke. Credit: Karen Bleier / AFP / Getty Images