Craig Torres and Steve Matthews | business | Hindustan Times
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Craig Torres and Steve Matthews

The Fed’s Open Market Committee will probably cut the benchmark rate in half, to 0.5 percent, on Tuesday, according to the median of 84 forecasts in a Bloomberg News survey.

business Updated: Dec 16, 2008 22:07 IST
Bloomberg

The Federal Reserve is set to reduce its main interest rate to the lowest level on record, and prepare for one of the boldest experiments in its 94-year history: using its balance sheet as the key tool for monetary policy.

The Fed’s Open Market Committee (FOMC) will probably cut the benchmark rate in half, to 0.5 percent, on Tuesday, according to the median of 84 forecasts in a Bloomberg News survey.

The central bank may also signal plans to channel credit to businesses and consumers by further enlarging its $2.26 trillion of assets.

Chairman Ben S. Bernanke plans new steps to combat the credit crunch and prevent the worst recession in a quarter century from turning into a depression.

The danger is that the Fed’s credibility could be hurt if policy-makers don’t clearly communicate a new strategy of manipulating the supply of money, at a time when FOMC members have diverging views on the subject.

“We expect the FOMC to leave the policy outlook open-ended,” said Louis Crandall, chief economist at Wrightson ICAP LLC, the world’s largest broker of trades between banks, in Jersey City, New Jersey. “The FOMC may have no choice but to muddle along for a while longer” because “there is no sign that a consensus on a new approach has begun to emerge,” he said.

The FOMC, which began meeting in Washington Monday, is expected to release its statement around 2:15 pm local time.