US Central Bank Weighing New Stimulus

Posted December 12th, 2012 at 10:00 am (UTC-5)
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Federal Reserve policy makers are meeting in Washington, with economists predicting the central bank will expand its stimulus efforts to boost the sluggish U.S. economy.

The central bank has pumped hundreds of billions of dollars into the U.S. economy over the last two years through purchase of government bonds and real estate-related securities, but the world's largest economy has only advanced at a modest pace. The U.S. jobless rate has edged lower over the past year, to 7.7 percent. But the improvement has been marked by workers dropping out of the labor market, and then not being counted as among the unemployed.

Analysts say the Fed on Wednesday could unveil a new plan to buy $45 billion of government securities a month, an effort aimed at keeping interest rates low to encourage businesses to invest and hire more workers.

The central bank's policy decisions are occurring as President Barack Obama and Congress negotiate how to resolve key government tax and spending issues by the end of the year.

Washington is calling it a “fiscal cliff,” about $500 billion worth of mandated spending cuts in key government programs and the expiration of tax breaks for most American workers that are set to take effect January 1 if no compromise is reached. Independent analysts say that if the White House and Mr. Obama's Republican opponents in Congress do not agree on a new financial plan, the spending cuts and tax increases could push the American economy into its second recession in three years.