The Federal Reserve Board’s Federal Open Market Committee is set to meet today, and could begin steps toward taking action on a slowing U.S. economy, numerous reports say. Some economists and Wall Street analysts believe that the FOMC could initiate additional federal stimulus efforts, after the U.S. Labor Department reported that the country shed about 131,000 jobs, seasonally adjusted, in July.
Asha Bangalore, vice president and economist at Chicago-based Northern Trust Co., said recent economic developments, or the lack thereof, could result in new developments.
“The economy advanced at a 2.4% pace in the second quarter and the pace of economic growth is projected to be noticeably slower in the second half. Labor market conditions have not improved since June,” he wrote in a white paper posted on Northern Trust’s web site.
“In fact, initial jobless claims have shown sideways movement for the first seven months of the year. Unemployment claims under special programs are currently distorted because of the delay in Congress funding these programs.
“The Fed is expected to announce an explicit plan to address the probability of further lackluster growth in the economy and growing concern about a deflationary situation developing in the months ahead. One option the Fed could consider is to reinvest prepaid and expired mortgage back securities in Treasury securities.”
Bruce Bittles, chief investment strategist with Milwaukee-based Robert W. Baird & Co., said the Fed is unlikely to take specific action out of today’s meeting. However, today’s committee meeting is likely to set the tone for future action taken in coming months.
“The U.S. economy continues to downshift and is now operating in second gear where GDP typically comes in near two percent,” Bittles wrote in a white paper issued yesterday. “The July Employment Report was weaker than expected as non-farm payrolls fell by 131,000, twice as much as expected.
“The Federal Reserve Open Policy Committee … is widely anticipated to keep rates unchanged. The accompanying policy statement is likely to feature strong language for the potential of aggressive monetary easing should the economy continue to slide.”