The U.S. Federal Reserve kicked off a two-day meeting on Tuesday that is expected to conclude with a signal that it is in no hurry to scale back its massive support for the economic recovery.
The U.S. central bank, which began meeting at 10:30 a.m., is expected to use a post-meeting statement to confirm that it will complete its $600 billion bond-buying program by the end of June and renew its commitment to maintain rock-bottom borrowing costs for "an extended period."
The Fed launched the bond-buying program, dubbed QE2 because it is the second round of so-called quantitative easing of monetary policy, in November to support a flagging recovery. The Fed had already cut interest rates to near zero in December 2008 and bought $1.4 trillion in longer-term securities to pull the economy out of recession and spur growth.
Fed officials say the latest program has helped buoy growth and point to a stepped up pace of hiring by businesses and stock market gains as evidence. However, the program has stirred harsh criticism from some U.S. lawmakers and international finance officials who fault it for fueling inflation.
"We see no chance of an expansion of the program at this time, as the political backlash following the announcement of 'QE2' was significant, and no one on the (Fed) has publicly made the case for an expansion," Goldman Sachs economist Andrew Tilton wrote in a note to clients. "Likewise we see essentially no chance that the (Fed) will end the program early."
Financial markets seem prepared for the end of the program and anticipate the central bank will be in no rush to tighten financial conditions as it waits for unemployment to descend further. The jobless rate stood at 8.8 percent in March.
U.S. stocks indexes rallied on Tuesday on strong earnings and a view that higher oil prices and sovereign debt woes in Europe looked unlikely to derail the recovery.
Government bond prices rose as traders judged inflation was not yet troubling enough to push the Fed to raise rates and bet other buyers would fill the void once the central bank's buying ends.
An expectation the Fed would not raise interest rates until some time next year continued to push down the value of the dollar. The weaker dollar was in turn driving up the prices of dollar-denominated commodities, such as oil.
The Fed is expected to announce its decision on the QE2 program at 12:30 p.m. on Wednesday.
Following the announcement, Fed Chairman Ben Bernanke will hold the first-ever regularly scheduled news conference by a Fed chief. The briefing starts at 2:15 p.m. and is expected to last about 45 minutes.
Bernanke will likely be pressed at the news conference for details on how and when the central bank will begin to withdraw some of its extraordinary economic stimulus. Analysts expect him to stick closely to the script of the Fed's policy statement and make the case that a quick policy turn is not needed.
In another new development aimed at improving public understanding of the Fed's policies, policy-makers will issue their quarterly forecasts for growth, employment, and inflation as the news conference begins. Those forecasts were formerly released as part of the minutes of Fed meetings, which are published three weeks after policy meetings.
Economists will look to see whether the Fed has bumped up its inflation forecasts, which could be a sign it is growing a bit more nervous that high oil costs are pushing up prices for a wider array of goods and services.
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