Fed likely to pass on stimulus

Federal Reserve policy makers signalled they will probably pass on providing more stimulus at their August 10 meeting and wait to see if signs of weaker economic growth persist.

Chairman Ben S Bernanke told lawmakers in South Carolina yesterday that consumer spending is “likely to pick up” amid a “moderate” expansion. St. Louis Fed President James Bullard said on July 29 that he expects the “recovery will continue through the fall.” Three days earlier, Philadelphia Fed President Charles Plosser said in a Bloomberg News interview that calls for more Fed stimulus “are premature”.

Officials indicated they may ease more should the economy falter after reports of a flagging housing industry and persistently high jobless rate. Options include strengthening the pledge to keep interest rates around zero, cutting the rate the Fed pays on excess bank reserves, or buying more Treasuries or mortgage bonds. No consensus has emerged among policy makers for any of those actions, remarks by officials show, and Bernanke didn’t mention them in a speech yesterday.

“You have to get a significant downward revision to their forecast that spills over into next year” to get the Federal Open Market Committee to vote for more easing, says Laurence Meyer, a former Fed governor and vice chairman of forecasting firm Macroeconomic Advisors in Washington.