WASHINGTON The Federal Reserve is likely to announce a third round of bond purchases Thursday, according to almost two-thirds of economists in a Bloomberg survey, while also extending the duration of its zero-interest-rate policy into 2015.
Chairman Ben Bernanke and his colleagues on the Federal Open Market Committee again will roll out unconventional policies to bolster economic growth of less than 2 percent in the second quarter and bring down unemployment stuck above 8 percent for 43 straight months, the survey showed.
“The Fed clearly wants to do more,” said Nick Sargen, a former San Francisco Fed economist who oversees $40 billion as chief investment officer at Fort Washington Investment Advisors in Cincinnati. “The economy is looking lackluster, and the Fed has said all along that they feel it’s almost immoral that the unemployment rate is as high as it is.”
Two rounds of bond purchases totaling $2.3 trillion have failed to breathe life into the labor market, which Bernanke said last month is a “grave concern.” That means policy makers will probably announce a new open-ended plan tied to a sustained improvement in the economy rather than specify an amount of purchases and an end date, according to 32 of the 73 economists in the survey. Twenty-two expect a fixed duration and amount.
The central bank would buy $300 billion in Treasuries and $400 billion in mortgage debt, according to the median estimates of economists who expect a fixed sum of purchases. Economists expecting open-ended asset buying predict monthly purchases of $30 billion in government debt and $35 billion in housing debt. After a year, the Fed would expand its balance sheet by a total of $780 billion.
Policymakers may forgo new bond purchases at this meeting to solidify a consensus on the issue among themselves or to better prepare the public for the move, said Michael Hanson, senior U.S. economist at Bank of America in New York.
Some Fed officials have spoken so enthusiastically about new easing that a decision to keep policy unchanged Thursday could trigger a slump in markets, said Neal Soss, chief economist for Credit Suisse in New York.
“Disappointing the markets doesn’t seem like a good strategy, but it’s not obvious how much more GDP to expect if they fulfill market expectations for more action,” said Soss, a former New York Fed economist.
Central bankers also are poised to extend until 2015 their forecast that economic conditions will probably warrant holding interest rates near zero through late 2014. Sixty-eight percent of economists surveyed expect an extension at Thursday’s meeting.