The U.S. Federal Reserve is expected to stick to its super loose monetary policy stance on Wednesday as high unemployment constrains policy-makers' enthusiasm about the economy's recent improvement.
The Fed began a two-day meeting on Tuesday that is likely to show central bank policymakers are becoming more upbeat about the economy, but not enough to tighten borrowing costs.
The Fed slashed benchmark interest rates and undertook a host of emergency lending measures to deal with the worst financial crisis in generations.
With the economy growing again, investors are wondering when and how quickly the Fed will begin to wind things down.
Officials have said they are leery of pulling the plug too quickly due to the weak labor market and tight lending conditions, making it unlikely a statement at the close of their meeting around 2:15 p.m. on Wednesday will signal any policy changes.
Given what's come out between now and the November 4 meeting it doesn't seem like the statement really requires any significant changes, said Conrad DeQuadros, senior economist at RDQ Economics in New York.
A letter from Fed Chairman Ben Bernanke to Republican Senator Jim Bunning, made public on Tuesday, suggested he is not yet convinced the economic recovery is sustainable, and will err on the side of caution.
Bernanke, who said last week the economy faced formidable headwinds, argued in his letter that the U.S. economy is operating so far beneath its potential that inflation is unlikely to become a problem.
The bulk of the evidence indicates that resource slack is now substantial, Bernanke wrote. I continue to expect slack resources, together with the stability of inflation expectations, to contribute to the maintenance of low inflation in the period ahead.
The Fed's pronouncement on Wednesday could offer some sort of nod to a recent improvement in the economic data, particularly in light of a considerable deceleration in the pace of job losses last month.
Even so, analysts suspect the Fed will not yet overturn its commitment to keep rates at an exceptionally low level for an extended period.
Financial markets have earned the Fed some reprieve. Oil prices, which touched $82 a barrel in late October, have since sunk closer to $70. At the same time, the dollar, whose rapid decline was raising concerns within the central bank, has staged a solid rebound.
Still, a report on Tuesday showed U.S. producer prices jumped 1.8 percent, sparking sell-offs in both stocks and government bonds.