Fed Expected to Set Inflation Target, Hold Interest Rates Near Zero Into 2014

The Federal Reserve begins a two-day meeting of the Federal Open Market Committee on Tuesday, which is expected to conclude with a signal that the Fed will hold interest rates near zero into 2014.

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However, the central appears unlikely to take any further action to prop up the economy, though some officials have suggested that more bond purchases may be needed.

The Fed will release policymaker projections for the benchmark federal funds rates for the first time on Wednesday, and will also publish views on when the first rate hike should occur.

The Fed may also announce an official inflation target, which would likely fall in the 1.7 percent to 2 percent range that the majority of Fed officials have already said is desirable.

The meeting of the FOMC began today at 10 a.m. A policy statement is due at 12:30 p.m. on Wednesday, to be followed by a news conference by Fed Chairman Ben Bernanke and the publication of policymakers’ quarterly forecasts.

Policymakers will likely wait to see whether signs of growth at the end of 2011 will continue into the new year before considering further bond purchases. Though Fed officials said economic conditions would likely warrant easy monetary policies, at least through mid-2013, the new rate projections are expected to show that view to have shifted.

Policymakers may also agree on a statement of longer-term goals and policy strategies that could set out an explicit inflation target, though it is unclear whether the Fed would publish such information.

Bernanke has long advocated adopting an inflation target, which could hold down inflation fears if the central bank feels the need to further boost the recovery.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com