Fed to pause, sow seeds for more easing

Tue Nov 1, 2011 1:24pm EDT
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By Pedro Nicolaci da Costa

WASHINGTON (Reuters) - The Federal Reserve could begin to prepare financial markets for further monetary easing at the conclusion of a two-day meeting that began on Tuesday, even if it refrains from any new stimulus just yet.

The U.S. central bank, while likely to hold monetary policy steady for now, could offer hints that it is moving toward some type of new overarching framework for monetary policymaking, in which it might deliver more explicit targets for unemployment, inflation or even economic growth itself.

Some analysts say a nod could come with slight tweaks to the language of the central bank's usual post-meeting statement, or be addressed more directly by Fed Chairman Ben Bernanke at a news conference on Wednesday.

A new framework could provide guidance on policy triggers and might be used to justify another round of bond purchases in the months ahead.

U.S. economic signals, while still weak, have improved somewhat since the Fed last met in September, when it took new steps to bolster spending and investment through a measure aimed at lowering long-term borrowing costs. Third-quarter gross domestic product grew a 2.5 percent annual rate, up sharply from the second quarter's paltry 1.3 percent clip.

This should give policymakers enough breathing room to hold policy steady for now, despite a 9.1 percent jobless rate that refuses to budge.

"While we don't expect any additional actions at this time, it will be important to focus on the language in the press release," said Paul Ballew, chief economist at Nationwide and a former Fed staffer. "It is increasingly likely that the FOMC will be providing the groundwork for additional steps in early 2012."

The Fed is expected to issue a statement at the conclusion of its meeting at about 12:30 p.m. (1815 GMT) on Wednesday.   Continued...

<p>Federal Reserve Chairman Ben Bernanke gives testimony at a Joint Economic Committee hearing on the economic outlook, on Capitol Hill in Washington October 4, 2011. REUTERS/Jonathan Ernst</p>