Fed to meet facing huge stimulus hopes

The plodding US economy, meager job growth and market tensions over Europe's debt crisis will hang over Federal Reserve policymakers when they meet next week.

A recent string of weak data on the economy, from rising jobless claims to easing inflation as gasoline prices retrench, has raised speculation that the Fed may act to boost growth.

When the Federal Open Market Committee (FOMC) meets Tuesday and Wednesday, policymakers will know the outcome of Sunday's Greek election, which could see voters reject the country's EU-IMF bailout and force it to exit the eurozone.

The Fed will have a couple of days to monitor the reaction of the markets and European leaders to the vote, and assess the Group of 20 summit in Mexico to see how the world's major economies will deal with the eurozone debt crisis.

But economists are divided on whether there is enough evidence to convince the Fed to unleash new stimulus, and recent comments from central bank officials have produced mixed signals.

Investors appeared to have no such doubts, betting a Fed stimulus could be announced Wednesday that will pump liquidity into the markets. The Dow Jones blue-chip stocks ended Friday with its second consecutive day of triple-digit gains.

Nomura analysts said the FOMC decision "is a close call."

Recent statements by senior Fed officials, including Chairman Ben Bernanke, suggest that current economic conditions were unlikely to merit additional stimulus, they said.

"Nevertheless, risks to the US outlook have increased markedly and the FOMC may be reluctant to disappoint markets that seem to be anticipating additional accommodation."

The Nomura analysts declared they expected no new policy initiatives to be unveiled but the Fed would highlight rising risks.

Much of the markets' bullishness has been inspired by analysts suggesting the Fed would ride to the rescue.

"We believe economic and financial conditions have deteriorated enough to push the Fed into providing more stimulus," said Barclays Capital analyst Marion Laboure.

Laboure was among those predicting the Fed will extend its so-called "Operation Twist," a program of selling short-term securities to buy longer-term ones to push down long term interest rates that is scheduled to expire at the end of June.

She said the FOMC would want to extend Operation Twist by a few months "in order to give it more time to evaluate whether the recent slowing in job growth proves temporary or persistent."

Still, the Fed has little ammunition left in its toolbox after slashing its key rates to roughly zero in December 2008 to stimulate growth. In April the Fed said it would keep the ultra-low rates at least through 2014.

Some said the Fed could launch a third round of asset purchases, known as quantitative easing, that could pump hundreds of billions of dollars into the economy.

Fed Chairman Ben Bernanke kept his cards close to his chest in last week's testimony to Congress.

"We have made no decisions," he said when asked about the possibility of a "QE3".

However, he added, "I wouldn't want to take anything off the table at this juncture."

"Remember this spring, when quantitative easing was off the table?" said FTN Financial economists Chris Low and Lindsey Piegza in a research note.

"Well, the Fed meets next week and QE is back. We don't think they will opt to announce it just yet, but they will likely lay the groundwork even as they revised down expectations for growth and inflation."

In his testimony to lawmakers, Bernanke said the economy appeared poised to continue to grow at a "moderate" pace of about 2.0 percent over coming quarters.

The Fed will offer its latest projections on growth, inflation and unemployment Wednesday, with Bernanke set to hold a post-FOMC news conference.

Michael Gregory at BMO Capital Markets noted the murkiness of the economic picture, and said some of the ebbing momentum could be due to an unseasonably mild winter.

"One can't completely rule out an easing announcement next week or soon after, particularly if the FOMC places increasing weight on mitigating the escalating risks facing the US economy, and emanating primarily (but not solely) from Europe," he said in a client note.

UBS analysts agreed. "Further easing, through an extension of Operation Twist cannot be ruled out though we think they will wait this time around, perhaps guiding future policy more."


Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Mercy pleas for Indonesia death row inmates as families arrive
    Mercy pleas for Indonesia death row inmates as families arrive

    Families of foreign drug convicts set to be hauled before the firing squad in Indonesia issued desperate mercy pleas on Saturday, as France warned of "diplomatic consequences" if one of its nationals is executed. Consular officials and relatives were arriving at a town near Nusakambangan, the high-security prison island where Indonesian executions are carried out, and where all of the death row convicts are now congregated. The foreigners -- two from Australia, one each from Brazil, France …

  • United States seeks access to Philippine bases as part of Asia pivot
    United States seeks access to Philippine bases as part of Asia pivot

    The United States has asked for access to Philippine military bases in eight locations to rotate troops, aircraft, and ships as Washington shifts its forces to Asia and as China expands its military presence in the South China Sea. U.S. Defense Secretary Ash Carter, in a speech in Arizona, has outlined Washington's next phase in its Asia "pivot", deploying its most sophisticated destroyers, bombers and fighters to the region. The Asia "pivot" has already seen U.S. Marines rotating through the …

  • China's island-building to loom large at SE Asia summit
    China's island-building to loom large at SE Asia summit

    China's creation of new island footholds in contested seas will hover over a Southeast Asian summit that has become an annual test of the region's nerve in standing up to its massive neighbour. The South China Sea hot potato drops this year into Malaysia's lap as the rotating chair of the 10 member Association of Southeast Asian Nations (ASEAN) and host of Monday's meeting. ASEAN states Vietnam, the Philippines, Malaysia and Brunei claim parts of the strategic South China Sea, but Beijing …

  • Philippines, China trade accusations over sea threats

    MANILA, Philippines (AP) — The Philippines accused China of aggressive maneuvers against its reconnaissance plane and fishermen in disputed seas where Beijing has stepped up construction of artificial islands, but China reiterated its claim on the strategic waterways. …

  • Indonesia orders execution of Mary Jane, 9 others
    Indonesia orders execution of Mary Jane, 9 others

    Indonesia has ordered preparations for the execution of 10 drug convicts, including Filipina Mary Jane Veloso, as the Philippine government filed yesterday a second appeal for judicial review of the case to save the maid from death by firing squad. The Attorney General’s Office (AGO) of Indonesia released an official letter dated April 23, instructing prosecutors to prepare for the execution of 10 convicts, the Jakarta Post reported yesterday. The execution would be conducted after the …

  • Noy to visit Canada, Japan
    Noy to visit Canada, Japan

    President Aquino will embark on a state visit to Canada in May and Japan in June to meet with his counterparts and promote Philippine interests. Deputy presidential spokesperson Abigail Valte said Aquino accepted the invitation from Canadian Governor General David Johnston to make a state visit to Canada from May 7 to 9. Tied to this trip is the President’s one-day working visit to the United States to meet with potential investors and with the local Filipino community in Chicago, Valte …

  • Business groups back K to 12 program
    Business groups back K to 12 program

    The government’s K to 12 program adding two more years to basic education received support from various business groups yesterday. However, they urged relevant government agencies to deal with issues regarding the implementation of Republic Act 10533, the Enhanced Basic Education Act or K-12 Law. In a statement, business groups led by the Philippine Business for Education (PBEd) said RA 10533 is a milestone piece of legislation that intends to bring the Philippines up to par with the rest of …

  • Happiest nations: Phl ranks 90th
    Happiest nations: Phl ranks 90th

    Switzerland is the happiest country in the world, while the Philippines placed 90th, according to a global ranking of happiness unveiled in New York on Thursday. Switzerland was followed closely by Iceland, Denmark, Norway and Canada. The 2015 World Happiness Report is the third annual report seeking to quantify happiness as a means of influencing government policy. The United Nations published the first study in 2012. …


Should Aquino be held accountable over the Mamasapano operations?

Poll Choice Options