Fed Meeting Likely to Signal Fate of Intervention Programs

When the Federal Reserve announces results of its policymaking meeting Wednesday, it should offer insights into whether the central bank will start unwinding some of its expansive interventions to prop up the economy.

The Federal Open Market Committee is all but certain to leave its target for short-term interest rates near zero, and likely will indicate that it intends to keep rates there for some time. The question is what the Fed will do with its less conventional programs rolled out over the past year.

Its decisions could signal how much longer the Fed will engage in extraordinary actions to support lending, and the call is a tough one. On one hand, the economy is starting to look better. On the other, financial crises can come in unpredictable waves, and Fed leaders still see considerable risks facing the economy and financial system.

"This has been such a severe economic decline that we could easily tip into a double-dip recession or have a slow recovery," said Bruce McCain, chief investment strategist of Key Private Bank in Cleveland. "But the longer you leave the programs in place, the more inflation risk there is. That makes it a very tough time to figure out what to do to negotiate between those two rocky shores."

The stock market fell Tuesday, off 1.3 percent as measured by the Standard & Poor's 500, as investors showed caution in advance of the Fed announcement. The steepest declines were in shares of financial companies. link....