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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Search Search: Fed to stamp out idea of early rate hike: analysts AFP - 2 hours 58 minutes ago WASHINGTON (AFP) - - A jittery bond market and economic "green shoots" notwithstanding, the Federal Reserve is likely to reaffirm a commitment to keep pumping money into the economy to battle recession, analysts say. ADVERTISEMENT The Federal Open Market Committee (FOMC) led by chairman Ben Bernanke is expected at a two-day meeting opening Tuesday to maintain its near-zero base interest rate along with a variety of programs providing easy liquidity to the financial system. Scott Brown, chief economist at Raymond James & Associates, said any shift in policy or emphasis by the Fed could rattle financial markets and imperil a fragile recovery taking root. "I don't think the Fed members want to do or say too much," Brown said. "They don't want to rock the boat." Brown said that at some point the Fed will need to lay the groundwork for reducing its unprecedented stimulus, to avert a surge in inflation, but that "it's too early to lay much of that groundwork." "You are looking at low inflation and a lot slack in the economy," he said. "The Fed is committed to keeping the lending rate very low for a long time." Cary Leahey, senior economist at Decision Economics, said the Fed may take the unusual step of signaling a specific time frame for maintaining its easy money policy, to counter the bond market, which has been pushing up rates in anticipation of a potential hike this year. "The FOMC must be perturbed that some people are pricing in a Fed tightening this year, which seems almost ludicrous given how close we came to the brink of Armageddon," Leahey said. "We're not even sure the economy has hit bottom." Leahey said that by tradition, "the Fed doesn't tighten credit until the unemployment rate peaks, and that won't happen until 2010, so I think the bond market is way ahead of the Fed." The Fed has already embarked on a massive program to purchase up to 1.2 trillion dollars in government and agency debt in an effort to bring down a variety of interest rates it does not control. Bernanke calls the effort "credit easing" while others call it "quantitative easing." It is aimed at lifting the economy out of its worst crisis in decades. But a sharp rise in bond yields, which translates into higher lending rates for mortgages, has raised fears that the recovery could falter despite Fed efforts. The yield on 10-year bonds has jumped as high as 4.0 percent before settling back a bit, and this has lifted mortgage rates from recent record lows. Leahey said this rise "is very much a positive development" because it reflects a normalization of the financial system, which suffered a near-meltdown after last year's collapse of investment giant Lehman Brothers. He also argued that if the economy is getting back on track, the housing market will be able to absorb a modest rise in interest rates. This argues against any move by the Fed to boost rates to control inflation and appease the bond market, Leahey argued. "If they hike rates in the next six months and the economy falls back, a certain Fed chairman will not get reappointed and a certain president will not get reelected, and neither one wants that to happen," he said. Some argue the Fed will want to acknowlege the "green shoots" of recovery to help boost confidence. "There is increasing evidence that the recession is ending and that a return to positive growth is imminent," says Barclays Capital economist Dean Maki. "Given this backdrop, the Fed is likely to sound more upbeat on growth prospects than its April statement that 'the pace of contraction appears to be somewhat slower.'" But he argued that the Fed "will likely want to balance this upbeat view with some rhetoric emphasizing headwinds still facing the economy, and it will likely aim to convince investors that tightening is not imminent." Others say a recovery may come faster and stronger than the Fed anticipates, which could pose a new conundrum for monetary policy. Robert Brusca of FAO Economics said he sees signs of a "V-shaped" recovery and added: "If I'm right it puts the Fed in a very difficult position." "If the economy is starting to recover the Fed may need to raise interest rates on the early side, to reassure the bond market," said Brusca. "But it doesn't want to raise rates enough to spook the bond market and stop the recovery in its tracks." Email Story IM Story Printable View Blog This Sign in to recommend this article » 0 users recommend Enlarge Photo A trader takes a break on the floor of the New York Stock Exchange. A jittery bond market and economic "green shoots" notwithstanding, the Federal Reserve is likely to reaffirm a commitment to keep pumping money into the economy to battle recession, analysts say. Most Popular – Top Stories Viewed Schwarzenegger in mid-air jet drama Chubby people live longest: Japan study Botox helps Australian stroke victim to walk again Clones of 9/11 hero dog unveiled in Los Angeles F1 governing body 'not surprised' at sport's split View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! Southeast Asia Pte Ltd. (Co. Reg. No. 199700735D). All Rights Reserved. Privacy Policy - Terms of Service - Community - Intellectual Property Rights Policy - Help

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