Fed May Try Again to Ease Policy as US Growth Outlook Falters

The Federal Reserve on Wednesday looks set to launch a fresh effort to invigorate the faltering US economic recovery, embarking on what could be the first in a series of incremental steps to foster stronger growth.
The central bank appears likely to try to push long-term borrowing costs lower by rebalancing its $2.8-trillion portfolio of bond holdings to weight it more heavily to longerterm securities. Such a move would fly in the face of Republican objections to Fed activism.

Top GOP congressional leaders wrote to Fed chairman Ben Bernanke this week urging the central bank to desist from further economic interventions, echoing criticism voiced by Republican presidential candidates in recent weeks. Fed officials, however, believe that by shifting their bond holdings they could encourage mortgage refinancing and push investors into riskier assets without stoking a run-up in consumer prices.
Members of the Fed’s policy-setting committee were to announce their decision late on Wednesday at the conclusion of a two-day meeting.
Faced with a 9.1% unemployment rate, consumer and business confidence sapped by a troubling US credit downgrade, and an escalating sovereign debt crisis in Europe, Fed officials have signalled they would seek to prevent already sluggish US growth from weakening further.
The Fed is not alone in its concerns. The BoE signalled it was ready to pump more money into the weakening British economy, potentially as soon as October. The US economy grew at less than a 1% annual rate over the first half of the year and analysts have warned of a heightened risk of recession.
“The US recovery has now demonstrated a renewed loss of momentum, one now joined by a more pronounced slowdown globally,” TD Securities economist Eric Green said. “In this environment the Fed will remain in crisis management mode.” The IMF warned on Tuesday that the US could fall back into recession if the government tightened its budget too quickly. As part of its policy prescription, it recommended the Fed consider a further easing of monetary policy as long as there was no sign an inflationary psychology was taking root.

Europe to Face US, G20 Heat

 Europe will come under pressure this week to stem its deepening debt crisis but talks among the self-proclaimed guardians of global finance are unlikely to yield bold action. Fears about a Greek default and contagion to larger economies in the euro zone have raised alarm in the US and emerging market heavyweights about the risk of a potentially major shock to an ailing global economy. At the meetings of the G20 and IMF this week, the US and economies like China, Brazil and India may tell Europe to be more decisive.