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US Central Bank May Cut Economic Stimulus

  • Jim Randle

Investors are watching nervously as the U.S. central bank considers when to reduce its efforts to stimulate the economy. Many economists predict that the cuts will come sometime next year, while others say it might be as soon as next Wednesday.

Stock prices plunged earlier this year when the U.S. central bank said it might gradually reduce stimulus efforts.

Federal Reserve Board Chairman Ben Bernanke said a strengthening economy would, eventually, no longer needed the boost it got from a huge program of bond purchases.

"If the incoming data support the view that the economy can sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of purchases," he said.

The National Association for Business Economics said its economists saw growth improving this year, rising to a three percent annual rate next year.

The group's survey of its members said stronger growth meant less need for stimulus this year, and made cuts nearly certain next year.

National Defense University Professor Nayantara Hensel designed the survey. “The bulk of our panelists think there is an 80 percent probability that the Fed is going to taper off in 2014,” she said.

The Fed has been trying to boost economic growth since the recession sharply increased unemployment.

First, it cut short-term interest rates to nearly zero and pledged to keep them ultra-low until unemployment falls to 6.5 percent or lower.

Then it created a second program to cut long-term interest rates, making it easier for families to borrow money for new homes and easier for businesses to raise capital for new equipment.

Under the program, the Fed is buying $85 billion in securities each month. So cutting that stimulus would reduce those purchases.

Hensel said not all the data supported a cutback. “We are seeing sort of some economic growth, but not as sudden and as significant as one might expect,” she said.

And a survey of the American Institute of Certified Public Accountants showed some members were worried that renewed wrangling over taxes and government spending in Congress could discourage investments needed for growth.

Gary Lubin, CEO of Centerphase Solutions, helped organize the survey and spoke to VOA via Skype.

“The debt ceiling, sequestration, issues around patent protection and some international business practices - all really create a certain level of uncertainty which leads to some apprehension or some holding back of items, for example capital spending,” he said.

Top officials of the U.S. Federal Reserve are scheduled to meet next Tuesday and Wednesday for debate on economic policy. On Wednesday, Bernanke is scheduled to meet with journalists to explain the changes - if any - in the bank’s strategy.