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Portfolio > Economy & Markets

Fed Meeting Confronted by Dilemma

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While one crisis may be averted–a double-dip recession–it doesn’t mean we’re out of the woods just yet, economically speaking. When the Federal Open Markets Committee meets Tuesday, high unemployment will be top-of-mind. What to do about it has Fed watchers riled, with many remarking they’ve never seen the governing body more split.

“When you’re in a crisis, your mandate’s a little different and you’re not debating things,” Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., told Bloomberg News. “When you’re in the no-man’s-land” of a “post-crisis economy, it’s a lot harder.”

She notes the Fed’s difficulties are compounded by the fact that it has already cut the overnight interbank interest rate to near zero and FOMC members are divided about the costs and benefits of further easing through unconventional policies such as buying more bonds and increasing its $2.3 trillion balance sheet.

While policy makers aren’t likely to adopt any new initiatives at their meeting on Tuesday, they probably will announce a major asset-buying program in January, Bloomberg notes.

Twenty-seven of 58 economists polled by Bloomberg News this month saw growth in 2011 below the 2.5% to 2.8% pace Fed policy makers peg as the long-term trend. Twenty-eight see the jobless rate rising above last month’s 9.6% sometime in the next nine months. That combination would constitute a growth recession.

Minneapolis Fed President Narayana Kocherlakota recently blamed much of the joblessness on ”mismatch problems,” with many Americans lacking necessary skills to fill available jobs.

Such problems ”do not strike me as readily amenable to the kinds of monetary-policy tools currently available to the Fed,” he said in a Sept. 8 speech in Missoula, Mont.


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