Bernanke may prolong exit from record stimulus

WASHINGTON | ATLANTA: Federal Reserve chairman Ben S Bernanke will probably delay the central bank’s exit from record stimulus, economists said in a survey, giving the flagging economy a boost without resorting to additional asset purchases.

Around 79% of 58 economists expect Bernanke to sustain the Fed balance sheet at current levels until October or later, compared with 52% who held that view before the Fed’s last policy meeting in April, according to a survey conducted last week. 90% of those surveyed predict the Fed will wait until the fourth quarter before dropping its pledge to hold interest rates low for an “extended period.”

Bernanke and his fellow policy makers have given no indication they’ll tighten policy anytime soon. With manufacturing slowing and unemployment rising during May to 9.1%, the Fed chief said this month growth is “frustratingly slow,” and Richmond Fed President Jeffrey Lacker said the economy could be “stuck below trend for some time.” “The longer they signal they will be on hold for an extended period, they are de facto easing,” said Carl Riccadonna, senior US economist at Deutsche Bank Securities in New York.

Expectations the central bank will delay a policy reversal help cut long-term interest rates and spur growth, he said. The Federal Open Market Committee will begin a two-day meeting on Tuesday in Washington and issue a statement on Wednesday. The central bank will also release economic projections by policy makers.