Fed Considers More Action Amid New Recovery Doubts
Disappointing U.S. economic data, new strains in financial markets and deepening worries about Europe's fiscal crisis have prompted a shift at the Federal Reserve, putting back on the table the possibility of action to spur the recovery.</br></br>Such action seemed highly unlikely at the central bank's April meeting, when forecasts for growth and employment were brightening. At their policy meeting this month, Fed officials will weigh whether the U.S. economic outlook is deteriorating enough to justify new measures to boost growth, according to interviews and Fed speeches.</br></br>The Fed's next meeting, June 19 and 20, could be too soon for conclusive decisions. Fed policy makers have many unanswered questions and have had trouble forming consensus in the past. Top Fed officials have said that they would support new measures if they became convinced the U.S. wasn't making progress on bringing down unemployment. Recent disappointing employment reports have raised this possibility, but the data might be a temporary blip. Moreover, the Fed's options for more easing are sure to stir internal resistance at the central bank if they are considered.</br></br>Their options include doing nothing and continuing to assess the economic outlook--or more strongly signaling a willingness to act later if the outlook more clearly worsens. Fed policy makers could take a small precautionary measure, like extending for a short period its "Operation Twist" program, in which the Fed is selling short-term securities and using the proceeds to buy long-term securities. Or, policy makers could take bolder action such as launching another large round of bond purchases if they become convinced of a significant slowdown.</br></br>The landscape for the Fed is complicated by the presidential election. Mindful of his own legacy and the Fed's independence, Chairman Ben Bernanke seems unlikely to allow the political calendar to sway his decisions. He appears especially immune from politics now, with just 18 months left in his term as chairman and little indication that he wants another. Still, some investors speculate the Fed has an incentive to decide quickly to avoid shifting policies close to the November vote.