Whither The Fed?

The policy-making committee of the Federal Reserve Board meets Tuesday and Wednesday to do….we know not what. The betting is that they won’t do much.

True, the committee could take some further step to stimulate econmic growth. If they did so, it would be the third such stimulation since August. But 5 out of 10 of voting members have declared themselves against such a move, on the grounds that it would risk giving the impression that the Fed is getting soft on inflation.

The committee also could add to the bank’s already hefty portfolio of Treasury securities and mortgage bonds, which would serve to keep down already-low long-term interest rates–a move that Antuilo Bomfin, senior managing director of Macroeconomic Advisory, views as unlikely. The firm, which forecasts the U.S. economic outlook, is headed by former Fed governor Laurence H. Meyer.

“Over its last two meetings,” says Bomfin of the Fed’s policy committee, “They already have taken some very bold decisions.” He cites ‘Operation Twist,’ the purchase of additional mortgage-backed securities, and the bank’s declaration that it intends to keep rates low though mid-2013, if current forecasts hold.

“So, I’m not expecting much in terms of big decisions from the two days starting Tuesday,” says Bomfin. “There will more said about the need for improved communication and transparency.” The meeting, he predicts, will be devoted to “internal discussions” rather than to making any big announcement Wednesday.


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