Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

U.S. Federal Reserve chairman Ben Bernanke. (JIM BOURG/REUTERS)
U.S. Federal Reserve chairman Ben Bernanke. (JIM BOURG/REUTERS)

Latest Fed meeting won’t match dramatics of December Add to ...

Ben Bernanke will have a tough time matching his dramatic December vow to keep interest rates ultra-low and easy money flowing until the U.S. cleans up its jobless mess.

Wednesday’s conclusion to the U.S. Federal Reserve’s first monetary policy meeting of 2013 is likely to be much less dramatic.

No change is expected to the Fed’s commitment to keep rates low indefinitely by hoarding billions worth of bonds and mortgage-backed securities – so-called quantitative easing.

More Related to this Story

That’s because the economic recovery remains uneven, inflation is in check and the jobless rate – at 7.8 per cent – remains well above the 6.5 per cent target set by Mr. Bernanke, the Fed chairman.

There’s also no Fed press conference scheduled, and no new economic forecasts to release.

That doesn’t mean Wednesday’s statement will be a total yawn.

The last paragraph – indicating who voted and how – could prove to be the most telling. Four new regional federal presidents rotate on to the federal open market committee (FOMC) this year. The most notable departure is Richmond Fed President Jeffrey Lacker, an outspoken inflation hawk who has vigorously opposed Mr. Bernanke’s embrace of QE from the start.

The Fed is poised to shift over the next few months from ramping up its bond purchases – now running at $85-billion (U.S.) a month – to eventually winding them down. The debate around the committee table will turn to exit timing, at this and future meetings.

The betting is that an exit won’t come until next year at the earliest. Based on the Fed’s own projections, the unemployment rate won’t fall to 6.5 per cent until 2015.

One of the four newcomers – Kansas Fed President Esther George – has expressed concerns about the fallout from all the bond-buying. But she’s not nearly as doctrinaire as Mr. Lacker. And her views will likely be offset by Boston Fed President Eric Rosengren, a big QE fan, who also joins the FOMC this year.

This conundrum for the Fed is that the economic signals remain mixed. Economists estimate that the U.S. economy grew at an annual rate of 1.2 per cent in the fourth quarter. Consumers are still tentative, probably a reflection of the higher payroll taxes that kicked in this month (the U.S. Conference Board’s consumer confidence index fell for the third month in a row in January).

On the other hand, the housing market has clearly turned the corner and a manufacturing renaissance is underway.

The danger for the Fed is that today’s slow growth turns into a boom, and its foot is still firmly on the QE pedal.

Follow on Twitter: @barriemckenna

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories