What Should the Fed Do This Week?
The central bank is widely expect to act, but what's its best strategy?
Starting today, the Federal Reserve begins its two-day November meeting. This should be a big one, as the central bank is widely expected to expand monetary policy. Various Open Market Committee (FOMC) members have complained that unemployment is too stubbornly high and inflation is lower than they would prefer. As a result, the Fed feels pressure to act. What should it do?
The Fed has consistently said that the U.S. is recovering. Yet it doesn't view that recovery as strong enough to create job growth that will push down the painfully high unemployment rate rapidly. But certainly, Fed economists are constantly considering how the economy is evolving. So what has changed since the Fed's September meeting?
- Retail sales continued their slow ascent in September
- The service sector grew faster in September
- The S&P 500 is up around 3.6% since the September meeting (though that may be in part because the market expects the Fed to act)
- Foreclosures continue at a high rate in September and new delays threaten to create further uncertainty in the housing market
- Wholesale and manufacturing inventories rose again in August
- Auto sales declined again in September
- The trade gap grew in August, nearing June's 20-month high
- Q3 GDP growth was a modest 2%
- Consumer inflation was very low in September.
- Consumer spending continued to rise, but at a lower rate in September than in August
- Personal income rose in August, but fell in September
- Home sales began rising modestly in August and September, though they remain very low
- Consumer confidence plummeted in September, and got a little back in October
- More jobs on a whole were lost in September, but private sector jobs grew slowly
- Consumer credit continued falling in August
The two options that have been mentioned most are asset purchases and adding some specificity to the Fed's communication of how long interest rates will stay very low. If the FOMC does go the asset purchases route, however, it's unclear how it will do so. It will either do so prudently or aggressively. There are also a few other possibilities. What should the Fed do? Vote below!