WASHINGTON (AFP)The US Federal Reserve opens a two-day policy-setting meeting Tuesday expected to leave near-zero interest rates and emergency measures on hold amid signs of a fragile recovery from recession.
The Federal Open Market Committee headed by Fed chairman Ben Bernanke likely will stay its highly accommodative course to help get credit, the lifeblood of the economy, flowing as the recovery progresses in fits and starts, analysts said.
Economists and traders will be poring over the FOMC statement that accompanies the rate decision Wednesday for glimmerings into the central bank's outlook on the sustainability of the nascent recovery and the direction of monetary policy.
The Fed meeting comes as economic data gives mixed economic signals on the strength and sustainability of the world's largest economy, but with a generally positive bias.
The FOMC has held its federal funds rate target at zero to 0.25 percent since last December in a bid to help kick-start the economy out of the worst downturn since the Great Depression.
"The Federal Open Market Committee may begin to lay the groundwork for the central bank's eventual exit from financial markets in its statement following this week's monetary policy meeting," said Joseph Brusuelas, analyst at Moody's Economy.com.
Brusuelas projected a hike in the federal funds rate in late 2010. "We do not expect the committee to increase rates until unemployment has stabilized and the recovery has been deemed sustainable," he said.
Economists highlighted that despite the Fed's loose reins, credit remains unusually tight.
"The only expansion effort banks are embracing right now is risk-free lending. Until that view changes, economic performance will remain subpar and policy rates will remain low for an extended period," said Patrick O'Hare at Briefing.com.
"The US economy has a pulse fortunately, yet it's a long way still from having a strong heartbeat because it has such low blood pressure."
A closely watched survey Monday showed a stronger-than-expected rise in manufacturing, the sector that is leading the US economy out of recession.
The Institute for Supply Management said its purchasing managers index rose in October for the third month at the strongest pace in more than three years.
The US economy grew for the first time in a year in the third quarter, at a 3.5 percent annual rate largely the result of government stimulus spending, official data showed Thursday.
Bernanke recently signaled there was no hurry to tighten monetary policy, saying action would be taken "when the economic outlook has improved sufficiently."
The Fed often waits at least several months after unemployment, a lagging indicator of recovery, peaks before beginning to raise rates.
With nearly 10 percent of the labor force out of work, consumer spending -- the traditional main motor of the US economy and key to a sustainable recovery -- remains challenged.
The unemployment rate hit a 26-year high of 9.8 percent in September. Most analysts expect a 9.9 percent reading for October.
"The most important implication of the expected slow recovery is that the economy is unlikely to see full employment for many years," said Karen Dynan at The Brookings Institution.
A Fed staff projection used by policymakers at the September 22-23 FOMC meeting showed unemployment holding as high as 9.25 percent by the end of 2010 and then falling to about 8.0 percent by the end of 2011.
Economists underscored that inflation remained tame amid the fragile recovery, well within the Fed's comfort zone.
"The inflation outlook should also remain unchanged, with the committee noting that it expects inflation to remain 'subdued,' on account of the 'substantial resource slack' and stable longer-term inflation expectations," said Millan Mulraine, analyst at TD Bank Financial Group.
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