The Federal Reserve is widely expected to hold off Wednesday from further economic stimulus while voicing a familiar refrain: “We’re ready to take action if and when necessary.”
Fed Chairman Ben Bernanke is scheduled to meet later Wednesday with the press to discuss the Fed’s outlook for future growth and what direction the Fed might take. The Fed concludes its two-day meeting around noon, will unveil its statement from the meeting at 12:30 p.m. ET and will issue fresh economic forecasts at 2 p.m.
Bernanke's news conference will follow 15 minutes later.
The question on many minds is what weapons the Fed has left to spur economic growth. Another round of quantitative easing has been hinted at but there is strong opposition both in Congress and among a handful of in-house Fed dissenters to the central bank buying up more debt on top of the nearly $3 trillion already purchased since the 2008 financial crisis.
The first two rounds of quantitative easing have been met with limited success at best and skeptics say another round isn’t likely to help much, either. Besides, improving liquidity by essentially printing money eventually leads to inflation.
Meanwhile, interest rates are already at historically low levels, hovering for nearly three years in a range of 0 to 0.25%, where they’ll stay until at least mid-2013, at the Fed’s direction.
Low interest rates theoretically promote lending and borrowing. But banks are reluctant to lend after getting burned by the credit bubble last decade, and consumers are reluctant to borrow, opting instead to put some money away in savings.
In September, the Fed announced a plan to shift part of its portfolio from short-term debt securities to long-term securities, a strategy dubbed Operation Twist, in an effort to lower long-term interest rates, including mortgages.
But despite the lowest mortgage rates in decades the housing market remains glutted with inventory and home values continue to fall, which cuts into consumer spending as fearful home owners watch the biggest investment of their lives crumble in value.
Again, mortgage lenders are reluctant to approve loans and consumers are reluctant to take the plunge into home ownership.
And no amount of economic stimulus has had much impact on the U.S. labor market, as unemployment has remained stuck at or near 9% for months. Data released Wednesday showed U.S. private-sector payrolls grew by 110,000 workers in October, but that hardly makes a dent among the 14 million unemployed Americans.
One strategy the Fed has mulled but not yet implemented is tying future stimulus programs to specific data target such as inflation or unemployment.