The last Federal Reserve meeting of the year will take place today, the meeting will not focus on the potential rate cut and if announced it will only be a small sideline of the meeting. Today the Fed will be busy planning and discussing 2012.
While today’s meeting is likely to produce any explicit action Chairman Bernanke and associates are busy at work behind the scenes trying very hard to make the holiday season, and the outlook for 2012, a little brighter. A statement is expected at 2:15 p.m. There will not be a press conference by Bernanke.
Economists are hoping that the Fed will engineer another round of asset purchases, or quantitative easing, early next year with a good chance they will also buy mortgage-backed securities in the first half of the year, possibly as early as January, that would be a good step for the banks and would unfreeze a lot of lending power giving the banks additional liquidity.
The economy is slowly recovering, retail sales were not as good as expected for November, after all the hoopla on Black Friday, but there was a slight increase for the month. Unemployment is down, jobs are up a bit and GDP is moving along slowly but moving in positive steps, not like most of Europe.
Ben Bernanke is a slow and cautious Chairman, and he will most likely take a sit and let’s see attitude through the holidays. The Fed also needs time to see the possibilities of Europe pulling itself up before they have a full blown recession.
The purpose of the asset purchases at this juncture would be to help stabilize the financial system and alleviate interest rate risk and uncertainty. It looks more and more likely that we will hear some news about QE3 in today’s announcement as there is a good probability we will see the use of QE3 right after the first of the year.
The Fed is expected to leave the bank’s key interest rate at an historic low range of 0% to 0.25%. This will be the third anniversary of rates near zero, a sign of just how weak the economy remains.
The Fed is expected to maintain its guidance that it intends to keep rates near zero until mid-2013 given its expectations for the economy. This guidance will be central to the Fed’s discussions at the meeting.
Analysts think the Fed will spend the bulk of the meeting fleshing out details of a planned overhaul of how they signal policy plans. Some positive commentary from the Fed might drive and US markets and the USD to significant gains today.