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With growth slowing and inflation worries easing a little, the Federal Reserve can afford to sit back at this week’s meeting and do nothing, say Wall Street economists.
“There are no reasons for them to do anything other than continue to wait and see,” said Nigel Gault, U.S. economist for Global Insight.
CBS MarketWatch reported that if that scenario holds true this would be the third straight Federal Open Market Committee (FOMC) meeting with no change in policy after the central bank pushed interest rates higher in 17 straight meetings starting in 2004 and ended in June. The Fed funds futures rate is now at 5.25%.
The Fed is meeting for an unusual two days this week. It is spending an extra day working on communication strategy. The statement will be released around 2:15 p.m. Eastern time on Wednesday (Oct. 25).
As Fed officials gather, the top of their list of worries is the housing market and concern about how severe the downturn will be. But at the same time, core consumer inflation remains well above their comfort zone.
Many economists see housing becoming a significant drag on growth, and worry it will reduce consumer spending. Many homeowners have been refinancing and taking cash out of their homes as the price of their property rose over the past five years.
These economists see the Fed responding with rate cuts by March.
Others see the economy finding its footing after a weak second half of 2006, keeping upward pressure on inflation and forcing the central bank to hike rates further.
They see the housing sector stabilizing in the first quarter after a needed correction from bubble-like conditions.
The Fed is uncertain which scenario is more likely, said Mike Swanson, senior economist at Wells Fargo.
“The Fed is sitting on a teeter-totter with two equally big heavy people and they are in the middle wondering which one is going to get the upper hand,” Swanson said.