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Fed May Recognize Faster Growth, Maintain Low Rates

Steve Matthews and Vivien Lou Chen
Bloomberg [1]
Wednesday, August 12, 2009

Federal Reserve policy makers may today acknowledge economic growth will be faster than they anticipated, while committing to keep the benchmark interest- rate target near the lowest level on record.

Central bankers gather in Washington as analysts project 2 percent growth or faster in the second half of 2009 — twice the pace the Fed forecast in June. At stake in today’s statement: delivering a message that the Fed will ensure the recovery is sustained, without stoking inflation expectations.

The need to reinforce the recovery means policy makers will reiterate rates will be kept “exceptionally low” for an “extended period,” analysts said. At the same time, Chairman Ben S. Bernanke and his colleagues will likely consider ending their $300 billion Treasuries-purchase program, an emergency step taken in March to help pull down borrowing costs.

“It’s a delicate period for the Fed,” said Marvin Goodfriend, a former research director at the Richmond Fed and now a professor at the Carnegie Mellon Tepper School of Business in Pittsburgh. “The Fed needs to balance the signals it’s sending in this meeting between concern for inflation risk” and “premature confidence that the recovery has begun.”

Full article here [1]