No Major Announcements Expected After FOMC Meeting

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The Federal Reserve's Federal Open Market Committee begins its two-day meeting Tuesday, and analysts expect the Fed to keep quiet on the future of monetary policy.

Former FOMC secretary and economist Vincent Reinhart told RTTNews that the Fed should be looking to keep the "lowest possible profile" after its meeting.

"The Fed is under enormous scrutiny, with many aspects of its role subject to revision by the Congress," he said.

He added, "Policy makers will update their characterization of the economy and not do anything more. It would be a brave chairman [Ben Bernanke] who changed policy just before the Senate votes on his confirmation. Don't expect it."

Analysts expect that the only change in the FOMC's statement from its last meeting will be an improved economic outlook in the light of recent economic data indicating that gross domestic product in the fourth quarter may be at a four to five percent growth rate.

The FOMC is still expected to leave interest rates at near zero levels, as high unemployment levels will keep economic recovery subdued.

"Fed policy makers are split," Reinhart said. "With the unemployment at 10 percent and likely to stay in that neighborhood for some time, those wanting to keep policy accommodative have the upper hand."

In recent weeks, Fed officials - including Bernanke, who is up for a second term as chairman - have indicated that they have no intention of raising rates until the economic recovery is stronger, particularly in regard to the high unemployment rate.

"The Fed would need to have a forecast that the unemployment rate was falling by a considerable amount," Reinhart said. "Fed policy is a slow-moving boat. They will warn that policy will no longer be expansive before they start to tighten."

In addition, analysts don't expect the Fed to change their plan to complete its purchase of mortgage-backed securities by the end of the first quarter in 2010, though that could still change in the future.

"Ending the MBS purchases is a big test," Reinhart said. "I think rates will likely back up when the Fed is no longer in the market. They've already stretched out the program, so they are unlikely to extend it more. However, if rates do back up, they will reverse course and reinstate the program."

The FOMC will their statement at 2:15 p.m. ET on Wednesday.

The Federal Reserve's Federal Open Market Committee begins its two-day meeting Tuesday, and analysts expect the Fed to keep quiet on the future of monetary policy. Former FOMC secretary and economist Vincent Reinhart told RTTNews that the Fed should be looking to keep the "lowest possible profile" after its meeting. "The Fed is under enormous scrutiny, with many aspects of its role subject to revision by the Congress," he said. (Market News Provided by RTTNews)