US Economy: Fed Sits, Again
So the US Federal Reserve Open Markets Committee's statement at 4.15 am Wednesday has slowly become one of the more anticipated for years.
In fact there's probably more anticipation than there was during the GFC and early months of the recession in 2008 and early 2009.
Economists expect the Fed to reveal some plan to boost the financing of the slowing US economy to ward off a dose of deflation or a double dip recession.
The rising level of concern over the slowing pace of growth, falling home sales and construction, subdued consumer spending and retail sales, not to mention the depressed jobs market, has got more and more analysts, investors and ordinary Americans fearing another recession.
That's not on the cards, but a slump in the level of growth and general activity is.
Even if the economy was still growing at a moderate pace (as the Fed had it in June), there would still be a sharp fall-off in activity in the 4th quarter of the year simply because the same quarter of last year saw growth at an annual 5.6%.
But since the last Fed meeting we now know that the size of the recession was bigger than previously thought, a fall of 4.1% in the level of activity from the end of 2007 to midway through 2009, compared with the previous forecast of 3.7%.
And the labour market is getting more depressed (as is housing).
A million people left the labour market from April through June because they were despondent at not being able to find jobs.
If they were still in the labour force, the US unemployment rate in July would have been around 10.4%.
Profit growth among big companies remains solid, as the second quarter is revealing, but consumer spending is falling (driven by falls in consumer credit), house foreclosures remain high and starts are at close to record lows.
Deflation remains a concern as consumer and producer prices edge lower.
But soaring grain, coffee, cocoa (chocolate), meat and orange juice prices might help stabilise price pressures around the annual 1%-2% a year, instead of under 1% and dipping, as it has been for the past three months.
Gross domestic product grew at a 2.4% annual rate in the second quarter, down from a 3.7% rate in the first three months of the year and the 5.6% in the December quarter of 2009.
The US labour market seems stuck in second gear with the private sector adding fewer than 100,000 jobs per month since May.
It needs to create around 125%, just to stand still so far as the unemployment rate is concerned.
Last month Federal Reserve Board Chairman Ben Bernanke stressed the central bank was "ready" to take further steps to stimulate the US economy if growth turns out to be weaker than expected.
"We are ready and we will act if the economy does not continue to improve -- if we don't see the kind of improvements in the labor market that we are hoping for and expecting," Bernanke told Congress.
Bernanke listed the options he said that the Fed is open to considering.
The first option would be to signal to markets that rates are on hold for a very long "extended period".
The second would be to reduce the interest rate on excess reserves. And the final option would be adjusting the balance sheet by not letting maturing housing-related securities run off.
That's what investors and markets generally are looking for in the statement at 4.15 am.
They know there will be no change to the key part of the statement, and that interest rates will remain at current levels (record lows) for an extended period.