The Fed will wrap up its two day meeting on Wednesday, which will be the first report on the economic recovery status since the report released earlier this month which contained good news for February job growth.
The previously released report showed that the U.S had added 236,000 jobs in February, which was the most significant growth in three months. At the same time, unemployment dropped to 7.7%.
Although February’s numbers may have been a sign of growth in the economy, the Fed is not satisfied just yet. The drop in unemployment was partly caused by workers leaving the workforce, and while 236,000 jobs added is definitely an upside, the Federal Reserve is looking for consistent growth before it stops giving economic support.
To contribute to the economy’s growth, the Fed uses quantitative easing approach. Using this policy, the Fed buys $45 billion in Treasuries and $40 billion in mortgage backed securities every month. Although this policy is controversial, the Fed aims to stimulate higher lending by banks, and therefore more spending by businesses and consumers.
Unlike previously used quantitative easing, the Fed has not issued clear guidelines or even a end date as it does not want to end the policy until the economy shows consistent improvement.
The Fed is also keeping interest rates close to zero, and has not expressed any desire to increase these rates until unemployment falls to 6.5%, or inflation rises to 2.5% per year from its current rate of 2% per year. The Fed now estimates that unemployment will fall to 6.5% in 2015.
As for the results from the meeting ending on Wednesday, some analysts and investors are expecting the Fed to show concerns regarding the effect that government spending may have on economic growth this year.
The Bottom Line
Although possible news of yet another slow year for economic growth may have its negative effects, it is likely that this news would appear positively on Wall Street. If staggered growth is expected to continue, the Fed will continue to pump stimulus money into the economy, which may boost stock prices.