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What the Fed is considering at FOMC meeting
NEW YORK, Jan 26 (Reuters) - The Federal Reserve is likely to repeat its promise to keep interest rates low "for a considerable period" when it meets this week against a backdrop of anemic jobs growth and low inflation. But officials will also spend time discussing how to phrase their statements and could make some changes in coming months, after a tricky year when repeated shifts in format left financial markets confused about the Fed's message. What the Fed will say at the end of its two-day meeting on Wednesday is the main focus of attention, since no one expects any increase in the 1.0 percent federal funds rate this week or for months to come. Some Wall Street economists are still predicting the Fed will raise rates in June, although most see steady rates till late in the year or even into 2005 -- after employment has rebounded and dispelled lingering worries about the economy. Economists think there will be little change in the central bank's statement on Wednesday, due about 2:15 p.m. EDT. (1915 GMT). But further out, a revamp is possible. The Fed is re-examining the way it communicates, and the two-day meeting will give officials an opportunity to discuss their options, such as releasing the minutes of meetings sooner. So, what will the Federal Open Market Committee ( News - Websites ) consider at its meeting on Tuesday and Wednesday? WHERE ARE THE JOBS? * Economic activity seems robust, but new jobs have been few and far between, with a scant 1,000 new jobs created in December. While many economists predict a big improvement in the labor market soon, Fed officials have been more cautious. * The housing market remains buoyant and a key sign of confidence despite the soft jobs picture. Housing starts were near a 20-year high in December, and weekly data shows mortgage applications at a record high as borrowing rates ease further. * Factories have snapped back from a long slump, with December activity at a 20-year high and new orders surging, according to the Institute for Supply Management. * Inflation is so low it is near "the bottom of the acceptable range", according to closely watched Fed Governor Ben Bernanke. The Fed's preferred measure of underlying prices rose only 0.8 percent over the past 12 months. POUNDING THE MESSAGE About two-thirds of the 19 FOMC members hit the road in January to discuss the economy at the start of the new year, and their theme was uniform: they are in no hurry to raise interest rates from a 45-year low of 1.0 percent. That is because the labor market is crucial to the economic outlook, and inflation is not expected to rise much this year because of all the excess slack in the economy. "There is almost no sense of inflation pressure, which is why we were led to believe that the phrase considerable period is still accurate," said Fed Governor Mark Olson. HELP FROM THE DOLLAR * After the disappointing December payrolls report, interest rate futures swiftly marked back the timing of the first rate rise to September from mid-year. * Fed officials have expressed no concern over the falling dollar, which is actually giving a handy boost to exports. Back to Original Article: Mortgage News You Can Use
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