WASHINGTON (Reuters) - If you expect the Federal Reserve to launch another round of bond buying to stimulate growth at its meeting next week, you’re almost certain to be disappointed.
Similarly, if you think the Fed will declare that recent gains in the job market mean it’s time to throttle back its extraordinary support for the recovery, you’re also probably off base.
Fresh off the decision in January to extend its promise on zero interest rates through late 2014, the U.S. central bank is keeping its options open on further bond buying, and it isn’t expected to take any policy action at its meeting next Tuesday.
“They’re in wait-and-see mode,” said Michelle Meyer, an economist for Bank of America Merrill Lynch in New York.
Fed Chairman Ben Bernanke has made clear in four appearances since his post-Fed meeting news conference on January 25 that while the economic outlook has brightened a bit, the economy is far from roaring back.
But he also disappointed many in financial markets by giving no clear indication that he plans to push for another round of asset purchases, or quantitative easing, in a bid to spur faster growth.
The central bank cut overnight rates to near zero in December 2008 and has bought $2.3 trillion in securities to push down other borrowing costs and spur the economy.
In what some officials have termed a further effort to push down longer-term interest rates, it said after its January 24-25 meeting that it would likely keep short-term rates near zero for a year-and-a-half longer than it had previously suggested.
At his news conference, Bernanke also signaled that further bond buying remained an option if the recovery faltered.
But many policy makers feel the Fed has largely done what it can, and the appetite for more bond buying, barring a deterioration in an already sluggish pace of growth, appears low.
“There would have to be a significant change to my outlook to change my position on policy at this time,” Sandra Pianalto, the president of the Cleveland Federal Reserve Bank, said last week. Pianalto is a voter on the Fed’s policy panel this year and is considered in step with the mainstream at the central bank.
Fed officials in January projected the economy would expand by a modest 2.2 percent to 2.7 percent in 2012, and the jobless rate would settle between 8.2 percent and 8.5 percent by the end of the year.
While the unemployment rate fell to 8.3 percent in January - marking a sharp 0.8 percentage point decline since August - growth is still subdued, and policymakers at the central bank are not convinced labor market trends will be sustained.
“Continued improvement in the job market is likely to require stronger growth in final demand and production,” Bernanke told Congress.
But even if the jobless rate levels off, it is not clear growth is weak enough to push Fed officials to act, given their already tepid expectations for the pace of the economy’s recovery.
The Fed will get important information bearing on the outlook on Friday when the Labor Department issues its monthly jobs report.
If the payrolls report for February falls in line with consensus projections of 210,000 new jobs and a steady unemployment rate, the economy would be seen as following the same maddeningly plodding path to full recovery it has been on - that is, enough to keep the Fed on the sidelines but the option of further easing on the table.
Economists believe the central bank will need several more months of data to determine whether the recovery’s trajectory is durable.
Many continue to believe the Fed will eventually be forced to buy more bonds to ensure progress in reducing unemployment and to keep at bay any risk of a troubling deflation.
“The Fed’s core policy makers ... have sounded dovish in almost every public utterance,” Vincent Reinhart, a Morgan Stanley economist and former Fed chief of staff, wrote to clients. “On balance, the logic for additional Fed action still seems compelling.”
Reporting by Mark Felsenthal; Editing by Leslie Adler