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Fed Preview: Today's FOMC Meeting Will Prove That Team Bernanke is Out of Ideas

If you're handicapping the U.S. Federal Reserve's two-day Federal Open Market Committee (FOMC) meeting that concludes today (Wednesday), you can make the following two predictions - and you'll almost certainly be right:

  • U.S. Federal Reserve Chairman Ben S. Bernanke will announce some form of economic stimulus.
  • But the short-term benefits will be small, and any long-term benefits won't be enough to help out-of-work Americans or jump-start the wheezing U.S. economy.
"I do think the Fed will intervene," Money Morning Chief Investment Strategist Keith Fitz-Gerald said in an interview. "But I don't believe for a second that the central bank's intervention will help the U.S. economy."

Troubling Trends

If anything, the nation's economy looks worse today than it did on Aug. 9, which is when central-bank policymakers last met. The "official" unemployment rate remains at an alarming 9.1% - with no jobs added in August - and true joblessness may range from 17% to 23%. Housing starts declined last month by the greatest amount since April. And the International Monetary Fund (IMF) just downgraded its U.S. growth forecast to 1.5% from 2.5% [To see related story in today's issue, please click here].

The spreading European sovereign debt crisis continues to whipsaw stocks, oil prices and gold. And several dramatic single-day plunges - in stocks and in gold - spooked investors for days after the event.

Bernanke feels pressure to act, but the odds that Federal Reserve policy can make a meaningful splash are low indeed, Money Morning's Fitz-Gerald says.

What to Expect From Today's FOMC Meeting

Since the Fed's actions have so far done little to ignite economic growth, investor expectations were muted ahead of today's FOMC meeting conclusion.

"It looks like the market is baking in an announcement of some kind of quantitative-easing strategy," Deirdre Dennehy, portfolio manager at Rockland Trust, said in an interview. "[But] for them to announce a QE3, I'm not sure how impactful that's going to be. The more times they do that, the less the effect in the market."

Analysts expect the Fed will attack longer-term rates by adjusting its $1.7 trillion portfolio of U.S. Treasury securities.

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