WASHINGTON (AP) — Federal Reserve policymakers on Wednesday will give a clearer picture of where they expect short-term interest rates to be in the next few years.
The Fed’s quarterly economic forecast will show where members of the policy committee expect the rate to be at the end of each of the next three years. And it will signal when each member expects the first rate hike will occur.
The change is intended to reassure consumers and investors that they will be able to borrow cheaply well into the future. And some economists said it could lead to further Fed action to try to invigorate the economy.
Many private economists expect the forecasts will show the Fed is unlikely to increase the rate before 2014. That would mark a shift from the Fed’s plan to keep the rate low at least until mid-2013.
The Fed will offer the views of those officials at the conclusion of its two-day meeting. The forecast on interest rates will be released along with the Fed’s updated projections for economic growth, unemployment and inflation.
Fed Chairman Ben Bernanke will discuss the forecasts and Fed policy at a news conference after the meeting.
The economy is looking a little better, according to a raft of recent private and government data. Companies are hiring more, the stock market is rising, factories are busy and more people are buying cars. Even the home market is showing slight gains after three dismal years
Still, the threat of a recession in Europe is likely to drag on the global economy. And another year of weak wage gains in the United States could force consumers to pull back on spending, which would slow growth.
Most economists don’t expect the Fed to drastically alter their forecasts. Some expect a more positive outlook for unemployment after rate fell to 8.5 percent in December — the lowest rate in nearly three years.
The decision to share policymakers’ views on interest rates is the Fed’s latest effort to make its communications with the public more open and explicit.
Until last year, the Fed has been fairly cryptic about the future direction of interest rates. The rate has been a record low near zero since December 2008.
The Fed may also include a statement on its long-term goals, although most economists expect the Fed will delay its release until a later meeting. The statement could provide clarity on the Fed’s targets for the two parts of its congressional mandate, keeping inflation and unemployment low.
No announcements are expected Wednesday of any further Fed action to try to lift the economy. Most analysts think Fed members want to put off any new steps, such as more bond purchases, to see if the economy can extend the gains it’s made in recent months.
That’s true even though the new roster of voting members is more likely to support further steps to boost the economy.
Twice last year, Fed action to try to further lower long-term rates drew three dissenting votes out of 10. But the three members who dissented have rotated off the voting panel. They have been replaced by officials thought to be more supportive of moves that Bernanke may push.
The Fed has taken previous steps to strengthen the economy, including purchases of $2 trillion in government bonds and mortgage-backed securities to try to cut long-term rates and ease borrowing costs.
The idea behind the Fed’s two rounds of bond buying was to drive down rates to embolden consumers and businesses to borrow and spend more. Lower yields on bonds also encourage investors to shift money into stocks, which can boost wealth and spur more spending.
Some Fed officials have resisted further bond buying for fear it would raise the risk of high inflation later. And many doubt it would help much since Treasury yields are already near historic lows. But Bernanke and other members have left the door open to further action if they think the economy needs it.