Fed not rushing for the exits

chart_buzz010410b.top.gifBy Chris Isidore, senior writer

NEW YORK (CNNMoney.com) -- When the Federal Reserve meets Tuesday and Wednesday, its policymakers will be able to discuss something they haven't seen in years -- an economy that really looks like it's on the mend.

Employers added 4,000 jobs to payrolls in November, the first gain in almost two years, although that was followed by another decline in December. There are numerous signs that the battered housing market is turning around.

And economists forecast that the nation's gross domestic product, the broadest measure of economic activity, rose at a 4.5% annual rate in the last three months of 2009. That report is due out Jan. 29, two days after the Fed wraps up its meeting.

The Fed deserves its share of the credit for the improvement in the economy as it cut its key lending rate, the federal funds rate, to nearly 0% in December 2008 and pumped trillions of dollars into the economy over the last two years.

But plenty of economists and investors are worried that the Fed will be behind the curve when it comes to pulling back on those steps, which could spark a rise in inflation down the road.

Those critics are likely to go away unhappy when the Fed releases its statement Wednesday.

Economists expect the central bank to once again downplay any threat of inflation, and to repeat its forecast of "exceptionally low levels of the federal funds rate for an extended period."

And most doubt there will be any new details about plans to unwind its other programs -- such as how and when it will start paring back its holdings of $1.25 trillion in mortgage-backed securities and $300 billion in long-term Treasurys -- until sometime this spring.

"They do need an exit strategy, but this month is not when they have to do it," said Kurt Karl, chief U.S. economist for insurer Swiss Re.

Bernard Baumohl, executive director of the Economic Outlook Group, said the Fed needs to be careful. It could wind up making businesses and the markets nervous if it signals it is ready to withdraw its stimulus programs before there are more indications of a sustainable recovery.

"The Fed can not appear to be aggressive as long as unemployment is at or near double digits," he said. The national unemployment rate was 10% in December.

Baumohl believes unemployment has yet to hit its peak. He said it'll be a good six months after unemployment finally starts to decline before the Fed will move to tighten monetary policy.

"The Fed is not going to suddenly raise alarm just because there's going to be one strong GDP report," he said.

Bernanke confirmation. The Fed meeting could take place with the Senate still yet to act on confirming chairman Ben Bernanke's nomination to serve another four-year term as the head of the central bank.

His current term expires Jan. 31, and it's not clear what happens if the Senate does not vote before then. Some believe he can remain in the post until there is a vote, others believe that Vice Chairman Donald Kohn would temporarily assume the new post.

Karl and Baumohl said they think the financial markets are probably more nervous about the Bernanke confirmation vote than they are about any changes in the statement after the Fed meeting, although just about everyone expects that Bernanke will eventually be confirmed.

But Karl said that he doubts the Fed will mention anything about the confirmation in its next policy statement. He said if Bernanke is not confirmed before Feb. 1, it will probably wait until then to make an announcement about who will be in charge of the Fed on an interim basis. To top of page

Just the hot list include
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET


Bankrupt toy retailer tells bankruptcy court it is looking at possibly reviving the Toys 'R' Us and Babies 'R' Us brands. More

Land O'Lakes CEO Beth Ford charts her career path, from her first job to becoming the first openly gay CEO at a Fortune 500 company in an interview with CNN's Boss Files. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.