Fed meeting called as market turmoil fuels recession fears Print E-mail
By Staff and Wire Reports   
Monday, 08 August 2011 15:41

When it meets Tuesday, the Federal Reserve could signal what it can or will do to help the nation avoid another recession. Some feel that if the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.

Since the Fed last met in June, Standard & Poor's has downgraded long-term U.S. debt, stock markets have plunged, Europe has struggled to contain its debt crisis and a range of indicators have shown the U.S. economy struggling to grow.

Some economists say the Fed might offer a clearer indication of how long it intends to keep long-term interest rates at record lows. More explicit language on interest-rate policy might boost investors' confidence at a dangerous moment for the global economy. But economists don't expect the Fed to hint at another round of Treasury bond purchases.

Earlier this summer, the Fed ended a $600 billion Treasury bond-buying program. The bond purchases were intended to keep rates low to encourage spending and borrowing and lift stock prices.

Fed Chairman Ben Bernanke isn't scheduled to speak after Tuesday's meeting. Bernanke this year made a historic change by scheduling news conferences after four of the Fed's eight policy meetings each year, but Tuesday's isn't one of them. The Fed's opportunity to calm the markets will come in the statement it will issue after the meeting.

Later this month at the Fed's annual retreat in Jackson Hole, Wyo., Bernanke will likely address the weakening economy, the S&P downgrade and the market turmoil.

In July, Bernanke told Congress that the Fed is ready to act if the economy slowed. He said the Fed could launch another round of bond purchases to stimulate growth. But he made clear the Fed had no plans for such a step. He also said the Fed could provide "more explicit guidance" about how long it planned to keep its key short-term rate at a record low near zero.

"We have to keep all the options on the table; we don't know where the economy is going to go," Bernanke said.

In the weeks since Bernanke spoke to Congress, the Dow Jones industrial average has lost nearly 15 percent of its value since July 21, tumbling more than 1,600 points in that time.

Stocks took a sharp nosedive in another choppy day Monday to finish at session lows as investors fled from risky assets following S&P's downgrade of U.S.'s credit rating last week in addition to ongoing economic jitters.

President Obama Monday blamed a downgrade in the United States' credit rating on political gridlock in Washington and said he would offer some recommendations on how to reduce federal deficits.

"Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a triple-A country," Obama said.

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