Fed opens policy meeting with few seeing new direction

The Federal Reserve opened a two-day monetary policy meeting on Tuesday expected to steer a steady course and provide little insight into the eventual reeling back of enormous stimulus. The Federal Open Market Committee's post-meeting statement will be parsed for clues on when, and how quickly, the Fed will begin to taper its $85 billion-a-month asset-purchases program. The FOMC meeting opened at 2:00 pm (1800), a Fed spokesman said. The policymakers gathered after news that consumer confidence had weakened more than expected. The Conference Board's consumer confidence index fell to 80.3, down from a five-year-high of 82.1 in June. Analysts had expected a better figure of 81.6, but consumers' deteriorating outlook on economic conditions and the jobs market over the next six months dragged the reading lower. On the housing front, home prices made a solid gain in May and were up 12 percent from a year ago, according to the S&P/Case-Shiller 20-city composite index. The residential real-estate recovery has been one of the rare bright spots in the sluggish economy. The Fed policy meeting falls between two major reports -- one on growth and another on the jobs market in the world's largest economy. "The Fed can keep its rosy outlook. But consumers are not buying it. They see some month-to-month progress, but, in the grand scheme of things, the economy is still very weak and prospects are worsening," said Robert Brusca of FAO Economics. Hours before the panel ends its deliberations on Wednesday, the Commerce Department will publish its first estimate of gross domestic product for the second quarter. Economists on average are forecasting GDP growth slowed to an annual rate of 1.1 percent from 1.8 percent in the first quarter. The July jobs report Friday was expected to show the unemployment rate ticked down to 7.5 percent from 7.6 percent in June. But jobs growth also was seen as falling, by 20,000 to 175,000. There will be no news conference with Fed Chairman Ben Bernanke to further shed light on the central bank's thinking, as there was six weeks ago after the last FOMC meeting. Bernanke suggested the Fed could begin cutting the asset-purchase program, also known as quantitative easing, later this year and end it in mid-2014 if the economy continued to improve. Markets appeared to ignore his assertion that the Fed's key federal funds rate, at 0.0-0.25 percent since December 2008, would not rise before 2015. Interest rates jumped more than a full percentage point in two months, pushing mortgage rates suddenly higher, raising concerns they could snuff out the housing market recovery. In later comments, particularly two days of twice-yearly testimony to Congress in mid-July, Bernanke sought to assure markets that the near-zero interest rate would stay put for a while, given the "weak" economy. "If we were to tighten policy, the economy would tank," he told lawmakers. The Fed has said any rate hikes still hinged on reducing the unemployment rate to 6.5 percent or less, and keeping inflation tame at around 2.0 percent. "Whether GDP moves up or employment down will be a key issue for the Fed as well as markets in coming months -- arguably, more important than the pace for GDP in Q2," said Jim O'Sullivan, chief US economist at High Frequency Economics.