The Federal Reserve is unlikely to cut interest rates before its next scheduled meeting in late January but may consider doing so if the outlook deteriorates sharply before then, the Wall Street Journal reported on Monday.
J. Scott Applewhite
Ben Bernanke, President Bush's top economic adviser, speaks in the Oval Office at the White House after Bush named him to take over the Federal Reserve from retiring Alan Greenspan, in Washington, Monday, Oct. 24, 2005. It was the third time in as many years the president has turned to the 51-year-old Bernanke for a sensitive post. Bush named him to the Fed board in 2002, then made him chairman of the president's Council of Economic Advisers earlier this year. (AP Photo/J. Scott Applewhite)
The article said the Fed is likely to keep rates on hold until then because last week's speech by Fed Chairman Ben Bernanke has already recalibrated market expectations towards a more aggressive half-point cut to 3.75 percent.
"But that could change if the outlook worsens sharply in coming days," the article said, without citing sources.
The Fed is seen slashing rates by a half-point at its two-day meeting ending on Jan. 30 after Bernanke gave a downbeat assessment of the economy last Thursday and said the central bank was ready to take "substantive additional action."
Traders cited a report from hedge fund advisory Medley Global Advisors that the Fed could cut rates as early as this week as stirring some of the speculation about a rare move between scheduled meetings.
Futures on the fed funds rate are pricing in a roughly 40 percent chance of a half-point cut before the next meeting.
The Journal article was co-authored by Greg Ip, the paper's Fed reporter who is sometimes seen as reflecting the views of senior policymakers.
The article also said that Bernanke has decided to speak more forcefully and often about the economic outlook, such as last week, in response to criticism the Fed has sent confusing signals about interest rates in the past few months.
Bernanke and Fed Vice Chairman Donald Kohn are likely to address the economic outlook in speeches at least once between policy meetings as long as the outlook remains murky, the paper said.