WASHINGTON — When the Federal Reserve announces results of its policymaking meeting this afternoon, it should offer new insights into whether the central bank is gearing up to unwind some of its expansive interventions to prop up the economy.
The Federal Open Market Committee is all but certain to leave its target for short-term interest rates near zero, and it probably will indicate that it intends to keep rates there for some time to come. The open question is what the Fed will do with the less conventional programs it has rolled out over the past year.
Its decisions could signal how much longer the Fed will engage in extraordinary actions to support lending, and the call is a tough one. On one hand, the economy is starting to look better. On the other, financial crises can come in unpredictable waves, and Fed leaders still see considerable risks facing the economy and financial system.
"This has been such a severe economic decline that we could easily tip into a double dip recession or have a slow recovery," said Bruce McCain, chief investment strategist of Key Private Bank in Cleveland. "But the longer you leave the programs in place, the more inflation risk there is."
The market committee's most immediate concern is what to do with a program to buy $300 billion in long-term U.S. Treasury bonds. The purchases, designed to lower long-term interest rates and improve functioning of credit markets more broadly, are scheduled to end in the middle of September, unless the Fed expands the program.
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