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		Home Page We're about Mortgage News You Can Use     Fed expected to keep promising `considerable period' of low interest rates Monday January 26, 4:51 pm ET By Martin Crutsinger, AP Economics Writer WASHINGTON (AP) -- With jobs still hard to come by, the Federal Reserve is expected to keep promising to leave interest rates at rock bottom for a "considerable period" at its first meeting of 2004 this week. However, there is uncertainty over just what the phrase "considerable period" may mean. Before an extremely weak unemployment report showed that the economy managed to create just 1,000 jobs in December, many analysts and investors thought the central bank would start raising interest rates as early as this spring to ensure that a booming economy did not set off inflation pressures. However, that view is being reassessed in light of the extremely weak December unemployment report, which raised concerns that the economy could still be in the grips of a jobless recovery two years after the 2001 recession ended. Because of the weak jobs picture and inflation that continues to remain dormant, most economists are betting that the Fed will put out a statement once again pledging to keep rates low "for a considerable period," a phrase which has shown up in the last four Fed statements, going back to last August. "The Fed is not going to move until they see several months in a row of strong employment numbers, and that has not happened yet," David Wyss, chief economist at Standard & Poor's said Monday. Wyss and other analysts said it is possible that the Fed will keep its target for the federal funds rate, the interest that banks charge each other, at a 45-year low of 1 percent for all of 2004. That would certainly be good news for borrowers and such consumer-sensitive industries as housing and autos, which have seen sales skyrocket because of the lowest financing charges in more than four decades. The advisory committee of the American Bankers Association, 10 top bank economists who twice a year give Fed officials their assessment of the economy, expects Fed rate increases will not occur until the last half of the year. And even when the Fed starts moving rates, the panel said the increases will be moderate. The group's median forecast is for the federal funds rate to be at 1.6 percent at the end of this year. Sung Won Sohn, chief economist at Wells Fargo in Minneapolis and a member of the ABA panel, is even more optimistic than the group's median forecast, believing that the Fed will leave rates alone for the entire year. "In an election year, why raise interest rates unless you have a strong economic justification?" Sohn said. Sohn said the Fed's signals to the markets this year likely will come in three stages, starting with the removal of the "considerable period" promise, followed by a change in the balance of risks from neutral to risks weighted toward higher inflation, and then an actual rate increase. Sohn said the Fed probably won't make its first rate hike until next January. The Fed's chief policy making group, the Federal Open Market Committee, is expected to discuss possible changes in the format of the statement it issues at the end of each meeting during its two days of discussions Tuesday and Wednesday. It appointed a working group to explore the matter last October. "They are thinking about how to communicate more effectively in order to avoid whipsawing the bond market, which they did last year," said David Jones, head of DMJ Advisors, an economic consulting firm. Alan Greenspan, now in his 17th year as Fed chairman, saw his reputation as a sure-footed communicator tarnished a bit after bobbled signals to the bond market last spring made some investors believe the central bank was going to adopt an even more aggressive stance to fight deflation, a destabilizing period of falling prices, than it ended up taking. Some Fed officials believe the "balance of risks" assessment, designed to signal possible future interest rate moves, should be scrapped altogether while others are arguing for it to be made clearer. Fed board member Ben Bernanke has argued for an earlier release of the FOMC minutes, which generally are not made public until the next FOMC meeting. The split in opinion may be so large that the central bank decides to leave things unchanged while they study the communications issue further. Analysts believe rates will stay low for months partly because of comments Fed officials have been making in recent speeches.   Back to Original Article: Mortgage News You Can Use   Continue with: Consumer Confidence Index in U.S. Jumps to 96.8, Highest Since July 2002 Gold Coins MBA Releases Long-Term Forecast for U.S. Economy and Housing Finance Market CBO Says '04 Deficit Will Rise to $477 Billion The Jobless Recovery A Cheap Dollar Boom Consumer Confidence Rises in January
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