News / USA

US Central Bank Mulls Action as Lawmakers Weigh In

Investors are waiting to see what action, if any, the U.S. central bank might take to spark the country's struggling economy.

The U.S. Federal Reserve concludes a two-day meeting Wednesday, with many economists predicting the bank's policy board will move to further lower borrowing rates in an effort to spur growth.  But leading Republican lawmakers have taken the unusual step of writing a letter to the Fed, urging the central bank to do nothing.

The letter, signed by House Speaker John Boehner and Senate Minority Leader Mitch McConnell, warned the central bank to "resist further extraordinary intervention," saying such moves had yet to help boost the economy.  They also warned new action could do "further harm."

A leading Democratic senator, Charles Schumer, criticized the letter, accusing Republicans of meddling in the central bank's affairs.

Federal Reserve Chairman Ben Bernanke has repeatedly said the central bank still has ways to help spark economic growth.  But the Fed's board of governors has been divided over whether to make any moves.

The U.S. economic recovery has been uneven as many Americans struggle to find work.  The unemployment rate is at 9.1 and has hovered above 9 percent for months.

Other key sectors of the economy, like the housing market, are also facing difficulties.

A report released Wednesday by the National Association of Realtors said sales of previously owned homes rose 7.7 percent in August, from the previous month.  But the trade group's report also said sales were driven by investors buying foreclosed homes.

The Fed has tried to spark the economy, and home sales, by lowering its benchmark lending rate to an all-time low of zero to one-quarter of a percent.

Many economists believe the Fed is considering a policy known as "Operation Twist."   The policy calls for selling short-term securities in its $1.7 trillion portfolio to buy longer-term holdings.  The goal of such a move would be to lower yields on U.S. Treasury bonds in the hopes of driving down consumer borrowing rates.

The U.S. Federal Reserve is set up as an independent decision-making entity.  Fed Chairman Ben Bernanke is a Republican and was first appointed by Republican President George W. Bush.  He was then renominated by Democratic President Barack Obama.

Some information for this report was provided by AP, AFP and Reuters.

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