US Fed to press on with QE, keep interest rates on hold
The Federal Reserve will keep interest rates at a record low today and carry on with quantitative easing (QE) in a vote that's forecast by economists to be without dissent for the first time in months.
Economists generally expect the Fed to signal that the threat of deflation has receded in an echo of remarks Mr Bernanke made earlier this month. Photo: Getty
By Richard Blackden, US Business Editor 12:28PM GMT 26 Jan 2011
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The meeting of the Fed's Open Market Committee - the body that sets interest rates at the bank - will be the first since the departure of Thomas Hoenig, the president of the Kansas City Fed who consistently voted against more QE.
As part of the usual rotation of regional presidents on to the FOMC, Hoenig is leaving and Charles Plosser, president of the Philadelphia branch of the Fed is joining, alongside three other new members.
Fed chairman Ben Bernanke has insisted that the a second, $600bn round of QE is necessary to help bring down an unemployment rate that remained stubbornly close to 10pc throughout last year. Critics of the controversial policy argue it will do little to prompt companies to hire and risks stoking inflation.
Since the Fed's last meeting in December, the economy has continued to offer some cause for hope, with manufacturing and consumer spending gaining traction. That optimism was strengthened after Congress and President Obama agreed to extend tax cuts for the next two years, prompting a flurry of higher forecasts for the economy from analysts on Wall Street.
"The FOMC may express more solidarity behind the already announced $600bn programme of Treasury purchases than we have seen in a while," said Julia Coronado, an economist at BNP Paribas.
The Fed's statement accompanying the decision will draw its usual fierce scrutiny from investors and traders eager to detect any change in policymakers' thinking. Economists generally expect the Fed to signal that the threat of deflation - one of the justifications for embarking on more QE - has receded in an echo of remarks Mr Bernanke made earlier this month.
Though Mr Hoenig has now left, the meeting is unlikely to be short of debate. Mr Plosser has already said that the Fed should re-examine QE if growth quickens further. Meanwhile, Narayana Kocherlakota, the President of the Minneapolis Fed and another new voter, has questioned whether monetary policy can do much to bring down a level of unemployment whose causes he has argued may be more structural than cyclical.
The Fed has kept interest rates at between 0pc and 0.25pc since December, 2008, when it aggressively cut rates in the months after the near-collapse of the financial system.
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