More Fed monetary easing likely on Thursday: Reuters poll

Wed Sep 12, 2012 11:00am EDT
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By Leah Schnurr

NEW YORK (Reuters) - Odds are mounting that the Federal Reserve could take action as soon as Thursday to energize a U.S. economy that is struggling to gain momentum in the face of a lackluster labor market and uncertain fiscal policy, according to a Reuters poll.

Economists lowered their forecasts for third-quarter growth to 1.7 percent at the same time as they ratcheted up the odds of a third round of bond buying from the Fed to 65 percent from the 60 percent chance that was seen as recently as August's poll.

Such an announcement was likely to come as early as Thursday when the central bank's policy-setting committee concludes a two-day meeting, the poll found. Of the 51 economists who put the chances of quantitative easing, or QE3, at greater than 50 percent, 39 expected the Fed to act this week.

Another 10 said the Fed will move by the end of the year and two didn't say when. Designed to keep borrowing costs low and bolster the economy, the central bank has already made $2.3 trillion in asset purchases through its first two programs.

Economists said the Fed could act to offset the number of headwinds facing the recovery, including slower global growth prospects, the debt crisis in the euro zone and uncertainty surrounding a set of U.S. tax hikes and spending cuts set to take effect at the start of next year.

"We see the U.S. as remaining in a moderate yet unspectacular recovery, and it's punctuated by these slow patches because our private sector is very sensitive to changes in the global environment right now," said Michael Gapen, senior U.S. economist at Barclays Capital.

Expectations the Fed will step in with additional stimulus have intensified since last week's disappointing August U.S. jobs figures. Chairman Ben Bernanke said in a speech late last month that progress in bringing down unemployment was too slow.

The median forecast was for $500 billion in new purchases, though some said they expected the Fed to announce an open-ended program that would allow the central bank to tailor the amount needed according to changes in the economy.   Continued...

A view shows the Federal Reserve building on the day it is scheduled to release minutes of the Federal Open Market Committee from August 1, 2012, in Washington August 22, 2012. REUTERS/Larry Downing