Fed expected to take small easing step WASHINGTON

Fed expected to take small easing step
WASHINGTON (MarketWatch) — The Federal Reserve will take the small easing step of pledging to keep rates low for longer at the end of its two-day meeting this week, analysts said on the eve of the event. http://articles.marketwatch.com/2012-07-30/ec...n-bernanke
At the moment, the Fed has said it expects to keep rates exceptionally low until late 2014. Economists say the Fed is likely to push this out until mid-2015.
“Extending the forward guidance is the least-costly option, and if their goal is to keep long-term interest rates low, it will do the trick,” said Scott Brown, chief economist with Raymond James.
Economists said the Fed must be disappointed that their past efforts have left the economy still struggling to find its feet. The economy grew a feeble 1.5% in the second quarter and the unemployment rate remains stuck above 8%. See reactions to GDP report.
The central bank will hold off, for at least a few more weeks, on major stimulus such as more asset purchases, to get a better sense of whether the economy is in a soft patch or in deeper trouble.
“While the case for taking immediate action is strong, we expect the FOMC will hold off for now, preferring to observe whether the current slowdown is enduring.” said Bruce Kasman, head of economic research at J.P. Morgan Chase, in a note to clients.
The Fed will get two more employment reports before its next meeting in mid-September, including the July report on Friday.
Job growth has only averaged 75,000 per month in the second quarter. Fed officials have indicated that this pace is unacceptable.If the next two reports are equally sluggish, the Fed will announce a new round of bond purchase after its Sept. 12-13 meeting, Kasman said.
Economists surveyed by MarketWatch expect nonfarm payroll employment grew by 110,000 jobs in July, up slightly from 80,000 in the prior month. The unemployment rate is expected to hold steady at 8.2%. See MarketWatch calendar.
The Fed will use its two-day meeting that ends Wednesday to review its policy options. It will release a statement at 2:15 p.m. Eastern. Fed Chief Ben Bernanke will not hold a press conference this week.
At the prior meeting in June, the Fed extended its holdings of long-term government bonds by $267 billion. Read Fed continues ‘Twist;’ Bernanke hints at more.
Analysts said the Fed move was designed to buy time and see how the economy developed during the fall.
But economic data took a turn for the worse shortly after the Fed meeting, putting more focus on further easing.
Bernanke himself gave no hints of imminent moves in two days of testimony on monetary policy to Congress earlier this month. But a report in The Wall Street Journal last week said the Fed was moving closer to action. As a result, most analysts are hedging their bets about the meeting this week, saying it is a close call that the Fed will remain on hold.