Fed to Meet as U.S. Recovery Sputters

April 21, 2012
While Fed Chairman Ben Bernanke has sounded more positive about the state of the economy in recent weeks, high gasoline prices, slowing job growth and Europe's debt problems have raised fears of another spring stumble.

The erratic path of the three-year-old U.S. economic recovery will weigh on Federal Reserve policymakers when they gather next week, amid a fresh bout of anxiety over the slow pace of revival.

The Fed's interest-rate-setting panel will meet Tuesday and Wednesday in Washington to decide whether more stimulus for the spluttering economy is warranted.

While Fed Chairman Ben Bernanke has sounded more positive about the state of the economy in recent weeks, high gasoline prices, slowing job growth and Europe's debt problems have raised fears of another spring stumble.

For consecutive years, the U.S. recovery has come unstuck heading into summer thanks to Middle East revolutions, European debt crises and Japanese earthquakes.

With that burned into the collective conscience, U.S. economists, policymakers and Wall Street recently have shown the kind of self-doubt normally reserved for spotty teenagers.

There has been "a recurring and almost maddening 'stop-go' pattern to this recovery -- stronger pulses followed by lulls," said Joshua Feinman, chief global economist for DB Advisors.

"There does seem to be an underlying improvement in the U.S. economy -- albeit a modest and erratic one -- very much of the 'two steps forward, one step back' variety."

The latest significant setback came with March unemployment figures, which showed the unemployment rate dropping to 8.2%, but the economy creating a meager 120,000 jobs.

That puts the Fed in a difficult spot.

Shorn of the ability to cut interest rates further -- they are already at close to zero -- the Fed will have to decide whether or not to increase controversial asset purchases.

The bond and security buying was designed to lower real interest rates, prop up prices and fuel growth-engendering borrowing.

But many inside the Fed remain concerned that the measures -- know to economists as quantitative easing -- are future inflation.

Outside the Fed, emerging-market countries have complained that the moves weaken the dollar, making U.S. exports unfairly cheap.

They are "paying a high price" for loose monetary policies of advanced economies, Brazil's Finance Minister Guido Mantega complained on Friday.

Faced with a moderate -- if uncertain -- economic outlook, and good reasons not to push ahead with new stimulus, the Fed is expected to stand pat.

Most economists expected the Fed's policymakers to instead opt to keep what measures they have in place and be prepared to move should things improve or worsen.

"Despite some choppiness in the monthly data, several measures of activity have grown at a solid pace in Q1. An outlook of continued modest growth will likely be sufficient to keep the Fed in 'wait-and-see' mode," said Peter Newland, an economist at Barclays.

Absent any surprise shift in policy from the Fed, investors will look more closely at economic forecasts, the language the central bank uses to describe the recovery and whether it alters its expectation that rates will not rise until late 2014.

"The committee's statement, Bernanke's press conference and updated forecasts will be sifted for clues about future policy," said Nigel Gault of IHS Global Insight.

Copyright Agence France-Presse, 2012

Popular Sponsored Recommendations

Global Supply Chain Readiness Report: The Pandemic and Beyond

Sept. 23, 2022
Jabil and IndustryWeek look into how manufacturers are responding to supply chain woes.

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

How Manufacturers Can Optimize Operations with Weather Intelligence

Nov. 2, 2023
The bad news? Severe weather has emerged as one of the biggest threats to continuity and safety in manufacturing. The good news? The intelligence solutions that build weather ...

How Organizations Connect and Engage with Frontline Workers

June 14, 2023
Nearly 80% of the 2.7 billion workers across manufacturing, construction, healthcare, transportation, agriculture, hospitality, and education are frontline. Learn best practices...

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!