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The Fed may approve additional measures to support the economy
The US Federal Reserve System (FRS) may approve additional measures to stimulate the economy at its meeting on August 10. If monetary policy easing continues, investor fears of a double-dip recession will increase significantly.Federal Reserve Chairman Ben Bernanke said on Monday that consumer spending is "tendency to improve" but economic development is moving at a moderate pace. Previously, financial authorities made it clear that they were ready to resort to auxiliary measures, as data were received about a weakening real estate market and persistently high unemployment levels. However, statements from other Fed officials indicate that they intend to wait for additional signals indicating weak economic growth. Federal Reserve Bank of St. Louis President James Bullard said in late July that the economic recovery would continue through the fall. The head of the Philadelphia Fed, Charles Plosser, believes that calls for additional stimulus measures from the Fed are premature.
Regulators have several tools to stimulate the economy: they can declare the need to keep the base rate close to zero, reduce interest rates on deposits on which commercial banks place their funds, and also resume the purchase of large volumes of government bonds or mortgage bonds.
As The Wall Street Journal notes, at the next meeting the Fed will decide whether to use the funds it receives from mortgage bonds to purchase new mortgage securities or government bonds. Just a few months ago, the Fed planned to gradually reduce the size of its portfolio. However, on July 21, Mr. Bernanke called additional purchases of such securities one of the options to support the economy. The Fed's bond portfolio has approximately tripled since 2007, to $2.3 trillion. Four months ago, the central bank suspended its securities purchase program.
The resumption of this process will indicate growing concerns about the prospects for the US economy, experts believe. At the same time, experts believe that the authorities have not yet decided what measures will be taken. “If economic forecasts are revised downward, it will force the Open Market Committee to vote to further ease monetary policy,” Lawrence Meyer, vice president of Macroeconomic Advisors LLC and former Fed governor, told Bloomberg. “Negative data from the labor market may prompt one to take such measures, or at least give a signal about the end of the rollback of stimulus measures.” “It will take another couple of months of negative labor market and consumer spending data for further monetary easing to occur,” said JP Morgan Chase & Co. chief economist. Michael Feroli.