The big news this week is likely to come out of the Federal Reserve as it weighs what to do next to revive the economy.
Tuesday
The never-ending horror story that is the U.S. housing market is expected to show more of the same in the newest data. Economists expect that August housing starts will have fallen 2.3 percent, to a 590,000 annual rate. That follows a 1.5 percent decline in July. Building permits, a forward-looking indicator, are also expected to have fallen, by 1.8 percent.
Wednesday
Existing-home sales may offer a slightly sunnier picture, with activity expected to have ticked up 1.7 percent in August, to a 4.75 million annual pace.
The Federal Reserve will complete a two-day policy meeting and appears poised to take its most consequential action since November to try to address faltering economic growth.
With economic growth and job creation having slowed since spring, Fed officials will use the two-day meeting — it was originally scheduled for a single day — to respond to the worsening outlook. But the Fed’s main target interest rate is already near zero, and some unconventional policy tools have already been tried.
One strong possibility is a Fed announcement that it will shift its portfolio of bonds into longer-term securities. Instead of buying long-term bonds with newly created money, as the Fed did under the quantitative-easing program that ended in June, the central bank would sell shorter-term securities and buy longer-term ones. That should help push down long-term rates for mortgages and corporate loans, encouraging economic activity.
Another possibility is that the Fed will lay out more precisely what economic conditions would cause it to end its easy-money policies. For example, it could state that it would not raise interest rates until unemployment falls below 7.5 percent or inflation surpasses 3 percent, a proposal advocated by Chicago Fed President Charles L. Evans.
Any move to easy monetary policy would probably attract some internal dissent; three members of the Fed committee dissented at the last meeting.
— Neil Irwin
Neil’s
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In an intriguing proposal for addressing the continent’s debt crisis, the anonymous German blogger Kantoos argues that the European Central Bank could use its bank regulatory powers in a de facto way to loosen monetary policy in crisis-stricken nations and to tighten policy in financially strong ones.
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