WASHINGTON — When the Federal Reserve today announces results of its two-day policymaking meeting, the news should offer insights into whether the central bank is gearing up to unwind some of its expansive interventions to prop up the economy.
The Federal Open Market Committee is all but certain to leave its target for short-term interest rates near zero, and it probably will indicate that it intends to keep rates there for some time to come.
The open question is what the Fed will do with its less conventional programs rolled out over the past year.
Its decisions could signal how much longer the Fed will engage in extraordinary actions to support lending, and the call is a tough one.
On one hand, the economy is starting to look better. On the other, financial crises can come in unpredictable waves, and Fed leaders still see considerable risks facing the economy and financial system.
“This has been such a severe economic decline that we could easily tip into a double-dip recession or have a slow recovery,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. “But the longer you leave the programs in place, the more inflation risk there is. That makes it a very tough time to figure out what to do to negotiate between those two rocky shores.”
The committee, which was to meet Tuesday and today, will release a statement announcing its decision about 12:15 p.m. MDT. The immediate concern is what to do with a program to buy $300 billion in long- term U.S. Treasury bonds.
The purchases, designed to lower long-term interest rates and improve functioning of credit markets more broadly, are scheduled to end in the middle of September unless the Fed expands the program.
