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Publish Date20/06/2012 11:08:59 AM
Last Update20/06/2012 11:34:03 AM
With economic uncertainty deepening and signs the U.S recovery is running out of steam, the Federal Reserve chairman Ben S. Bernanke may feel the urge to take action on Wednesday and provide comfort to distressed markets.
The FOMC will publish its interest rate decision at 12:30 p.m. in Washington , where policy makers have likely preferred to hold benchmark interest rate at its record low of 0.0 percent to 0.25 percent, and in other words, maintained its pledge to continue supporting the recovery.
U.S. stocks future-index were flat ahead of a key policy event on Wednesday. As of 06:23 EST, Dow Jones industrial Average futures were little changed at 12,756. Standard & Poor`s 500 futures fell no more than 0.1 percent at 1,349.60, and NASDAQ 100 futures was at 2,614.75.
"As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the vent that financial stresses escalate," Chairman Ben S. Bernanke told the Joint Economic Committee Last Thursday.
The 58-year-old chief, however, didn’t sound out any promising action in light of the recently downbeat figures from the ailing jobs market, after May`s anemic payrolls gain, with the unexpected uptick in unemployment rate.
Payrolls in the U.S. increased by a soft 69 thousand in May, and unemployment rate rose for the first time since June 2011. Even as labor market falters, Bernanke expects economic growth to continue at a moderate pace this year.
In September, the Fed launched a bond-purchasing program dubbed as "Operation Twist" in a bid to restore growth by replacing short-term securities with longer-term bonds that mature in six to 30 years. Operation Twist is scheduled to finish by the end of this month.
Traders and analysts are hoping the Fed will extend the twist operation to include mortgage-backed securities for the first time, a move that significantly bolster the slow-recovery housing markets in a hand, and to expand the capacity of the central bank`s portfolio.
U.S. policy makers may be compelled to spur slowing economic recovery in the coming days, as markets suffer lack of credit and confidence levels remain on the edge amid the worsening political and financial situation, particularly in the 17-bloc euro area.
New projections for growth, unemployment and inflation will be released shortly after the rate decision, where policy makers will probably downgrade their economic projections. In April, they were expecting growth between 2.4 percent and 2.9 percent in 2012.
Bernanke will follow with a news conference at 02:15 p.m.
The chairman may face even greater pressure as the labor market wanes, with evidence from manufacturing and housing reports that U.S. growth has faltered, thus the Fed may ultimately give its bond-purchasing program another twist, or just extend its pledge to keep short-term rates near zero beyond late 2014.
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