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Investors will be looking to the Federal Reserve Wednesday for clues about how long it might continue its bond-buying program aimed at pushing interest rates down.
The Federal Open Market Committee is expected to release a policy statement at 2:15 p.m. Wednesday, the second day of its two-day meeting.
In keeping with a practice it began last January, the first meeting of the new year will highlight the FOMC’s long-term goals and monetary policy.
The Central Bank likely will reiterate the goal it has maintained all of last year: boosting the stagnant U.S. economy.
The Fed’s first meeting of 2013 comes after an extraordinarily busy year, capped by two key moves in December.
That’s when the Fed said it would continue spending $85 billion a month on bond purchases to keep interest rates low. At the same time, the Fed set unemployment and inflation “thresholds” instead of a date when the central bank expected to be able to raise interest rates.
Under the new thresholds, the Fed will not raise interest rates unless unemployment is 6.5% or less or inflation is more than 2.5%. Unemployment is expected to remain at 7.8% when the latest statistics are released Friday.
“The committee has made a lot of deliveries lately and has set a whole lot of goals that have not been achieved. So, I don’t see any additional changes coming out of this meeting,” Robert Shapiro, chairman of economic advisory firm Sonecon LLC and former undersecretary of commerce for economic affairs, told Bankrate.com
This week’s two-day meeting comes at a time when interest rates have fallen to record lows and stock prices have soared to near all-time highs.
The Fed is likely to underscore signs that point to a growing economy, such as falling unemployment claims and an improving housing market, but is not expected to discuss when it may reduce its bond-buying program.
How Will the Fed Wind Down Bond-Buying Program?
How the Fed will ultimately wind down the bountiful bond-buying program remains foremost in many economists’ minds.
“At their last meeting they talked about potentially slowing the rate of purchases within QE3,” Nic Brown, head of commodity research at Natixis, told Reuters. “If we get any more talk like that, it would be an interesting signal that the Fed thinks there is more than enough liquidity in the system.”
But four rounds of quantitative easing and several years of rock-bottom interest rates have had a muted effect on economic growth to date. So don’t look for the FOMC to turn off the spigot anytime soon.
Also at this week’s meeting, the FOMC will welcome four new Federal Reserve bank presidents.
The FOMC rotates voting Fed bank presidents yearly, while the permanent committee is composed of the seven-member Board of Governors, which includes Chairman Ben Bernanke, and the New York Fed bank president.
New on the voting panel for 2013 are Charles Evans from the Chicago Fed; Esther George from the Kansas City, Mo., Fed; Eric Rosengren from the Boston Fed; and James Bullard from the St. Louis Fed.
Exiting are Dennis Lockhart of Atlanta; Sandra Pianalto of Cleveland; John Williams of San Francisco; and Jeffrey Lacker of Richmond.
Lacker was renowned during 2012 as the FOMC loner. He was the persistent and solitary “nay” voter against all FOMC policy moves last year, citing fears of encouraging inflation.
The new voting bloc is expected to be more unified. However, George has the “potential to not be as supportive” of QE3, notes John Stewart, managing director of Vantage Economics. But Stewart said George’s opposing vote wouldn’t be enough to change FOMC policy decisions.
“The annual rotation of voting members will have little impact, although the group will be slightly more dovish this year,” Paul Ashworth, chief U.S. economist at Capital Economics, penned in a note to clients.
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