US Fed opens meeting expected to launch new stimulus

November 03, 2010 | 00:31

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The US Federal Reserve opened a two-day policy-setting meeting on Tuesday expected to launch a new round of large-scale asset purchases to prop up a weak economic recovery.

The US central bank is likely to announce that it will restart purchases of long-term US bonds -- essentially printing billions of dollars -- in the hope of staving off deflation that could spell a decade of economic stagnation.

Fed chairman Ben Bernanke and other Fed officials have raised the expectations of a return to large-scale spending, known as quantitative easing, not seen since the depths of the economic crisis.

Goldman Sachs analysts and others predicted the rate-setting Federal Open Market Committee would start with a purchase of about $500 billion in Treasury bonds.

While the Fed took similar measures during the crisis, it is virtually unprecedented when the economy is not teetering on the edge of collapse, raising protests from some Fed members who fear it is unnecessary and will fuel long-term inflation.

Critics of the policy argue that although the recovery is painfully slow markets should be allowed to do their work, and worry that if the policy fails the Fed's credibility will be wrecked.

The meeting opens Tuesday in the thick of hotly contested congressional and local elections nationwide.

President Barack Obama's Democrats are poised to lose seats in Congress to Republicans, who oppose the administration's massive stimulus spending that dragged the economy out of the worst recession since the Great Depression, but ran up sky-high deficits doing it.

AFP

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