The Associated Press
WASHINGTON - The Federal Reserve appears to be moving toward announcing some new step to try to energize the troubled U.S. economy. The question is whether it will do so after its policy meeting this week.
Probably not, many economists say.
The U.S. economy grew at an annual rate of just 1.5 percent from April through June, less than the 2 percent rate in the first quarter. But many analysts say the economy hasn't slowed enough to compel the Fed to announce further help immediately.
Still, Fed officials have signaled their concern about weakening job growth and consumer spending, which have brought the economy closer to a standstill. In June, Americans spent no more than they did in May, even though their income grew 0.5 percent, the Commerce Department said Tuesday.
Chairman Ben Bernanke has said the Fed is prepared to act further if unemployment stays high.
What that action might be isn't clear. The Fed has already pursued two rounds of purchases of Treasury bonds and mortgage-backed securities to cut long-term interest rates and encourage borrowing and spending. These programs are called quantitative easing.
The Fed has also extended a program called Operation Twist. Under this program, the Fed sells short-term Treasurys and buys longer-term Treasurys.
"I think they are inching towards another round of quantitative easing, but I am not convinced they will get there at this meeting," said Paul Edelstein, director of financial economics at IHS Global Economics.
The Fed meeting is one of three big events this week that investors and economists will pay close attention to. The European Central Bank meets on Thursday, and the U.S. Labor Department releases the July jobs report on Friday.
Markets surged last week after ECB President Mario Draghi said Thursday that the central bank would do "whatever it takes" to preserve the euro. The comments raised expectations that the ECB might step in to buy Spanish and perhaps Italian government bonds to lower the countries' borrowing costs.
Economists forecast that U.S. employers added 100,000 jobs in July. That would be only slightly better than the 75,000 a month from April through June and still down from a healthy 226,000 average in the first quarter. The unemployment rate is expected to stay at 8.2 percent.
Few think that further lowering long-term rates would provide much benefit to the U.S. economy. Most businesses and consumers who aren't borrowing now aren't likely to change their minds if rates slipped a bit more.Tweet