The Federal Reserve is widely expected to provide Wall Street with more of the same Wednesday – that is cautious maintenance of the same monetary policy in place now for over three years.
Interest rates will remain at historically low levels, and the Fed will likely signal its willingness to step in again with a bond buying program if the economy warrants it.
The big change today will be the Fed’s release of individual policymakers' forecasts for when interest rates might be heading higher. Those forecasts are likely to show a hesitancy to raise interest rates any time before 2014.
Last summer the Fed broke from its longstanding policy of not providing specific dates or timetables for its policy decisions by announcing interest rates wouldn’t be raised from their current range of 0-0.25% before mid-2013.
The forecasts due Wednesday from members of the Federal Open Market Committee have been widely viewed as an opportunity for policymakers to push back that timetable given the halting nature of the U.S. economic recovery.
Analysts at Nomura Securities offered the prevailing view of Wall Street in a note to clients Wednesday: “We expect the FOMC to acknowledge better incoming data on the US economy, but signal no change in the outlook. We also expect the FOMC to keep a reference to a specific date in the statement, but we think that date will move to 2014.”
An announcement on interest rates is due at noon EST, the forecasts will be released at 2 p.m. EST, followed by a press conference at 2:15 p.m. by Fed Chairman Ben Bernanke.
The economy has shown signs of momentum recently, in particular in labor markets where the unemployment rate has dropped the past two months. It now stands at 8.5%, the lowest point since February 2009. Confidence among homebuilders is also rising, according to data released last week.
But little has changed in Europe and concerns remain that a default by Greece or another debt-addled country could set off a banking crisis to rival the 2008 financial crisis.
Europe’s long-running debt crisis is the main reason the Fed is expected keep its options open with regard to another round of bond purchases, known as quantitative easing.
Since late 2008, when the collapse of the U.S. housing market set off a chain reaction that nearly brought down the global economy, the Fed has pursued a loose fiscal policy that has included low interest rates and nearly $3 trillion in bond purchases in a prolonged effort to kick start the economy.