The Fed’s Open Market Committee will probably cut the benchmark rate in half, to 0.5 percent, according to the median of 84 forecasts in a Bloomberg News survey. The central bank may also signal plans to channel credit to businesses and consumers by further enlarging its $2.26 trillion of assets.
Chairman Ben S. Bernanke plans new steps to combat the credit crunch and prevent the worst recession in a quarter century from turning into a depression. The danger is the Fed’s credibility could be hurt if policy makers don’t clearly communicate a new strategy of manipulating the supply of money, at a time when FOMC members have diverging views on the subject.
“We expect the FOMC to leave the policy outlook open- ended,” said Louis Crandall, chief economist at Wrightson ICAP LLC, the world’s largest broker of trades between banks, in Jersey City, New Jersey. “The FOMC may have no choice but to muddle along for a while longer” because “there is no sign that a consensus on a new approach has begun to emerge,” he said.
Investor speculation that the Fed will ease monetary policy today pushed yields on 10-year Treasury notes to the lowest since 1954. The dollar traded near a two-month low against the euro and was close to its weakest level in 13 years versus the yen.
‘Saturday Night Massacre’
The last time the Fed detached money creation from setting interest rates was in 1979, when former Chairman Paul Volcker oversaw a violent upward move in borrowing costs. Dubbed the “Saturday Night Massacre,” the effort was aimed at reining in inflation, which exceeded 13 percent that year.
Bernanke, a scholar of the Great Depression, indicated in a Dec. 1 speech that policy makers will need to focus on “the second arrow in the Federal Reserve’s quiver -- the... [continues]
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