The U.S. Federal Reserve was being closely watched Tuesday for its latest take on where the American economy is headed.
The central bank’s policy-making group, the Federal Open Market Committee, was due to release its latest statement on monetary policy at 2:15 p.m. ET.
Markets were indicated to open lower, ahead of the announcement.
U.S. futures pointed to a negative start to the trading day as the Dow Jones industrial futures backed off 91 points, or 0.9 per cent, to 10,575 at 9 a.m. ET. The Nasdaq futures dropped 17 points, or 0.9 per cent, to 1,896.75 while the S&P 500 futures were down 11.2 points, or one per cent, to 1,114.4.
The Canadian dollar declined 0.90 of a cent to 96.50 cents US.
Unemployment stuck at 9.5%
The Federal Reserve was under increasing pressure to act after Friday’s release of the July jobs report. That showed the unemployment rate stuck at 9.5 per cent and a third straight month of anemic hiring from the private sector.
One option is for the bank to say that it will keep short-term interest rates at record lows for as long as it takes to encourage more use of credit.
It could also use the proceeds from its investments in mortgage securities to buy government debt on a small scale. That could help drive down long-term interest rates.
A bolder step would be to restart programs undertaken during the financial crisis that involved large-scale purchasing of mortgage-backed securities and government debt.
That could spur growth by driving down interest rates even more, but carries the risk of spooking financial markets about the health of the economy and leading to a sell-off on Wall Street. That, in turn, could undermine businesses and consumer confidence, even pushing the world’s biggest economy back into recession.
In 2009 and early 2010, the Fed bought $1.25 trillion US in mortgage securities, $175 billion in mortgage debt from Fannie Mae and Freddie Mac, and $300 billion in government debt as part of two crisis-era programs.
cbc.ca
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