The Federal Reserve could begin to prepare financial markets for further monetary easing at the conclusion of a two-day meeting that began on Tuesday, even if it refrains from any new stimulus just yet.
The U.S. central bank, while likely to hold monetary policy steady for now, could offer hints that it is moving toward some type of new overarching framework for monetary policymaking, in which it might deliver more explicit targets for unemployment, inflation or even economic growth itself.
Some analysts say a nod could come with slight tweaks to the language of the central bank's usual post-meeting statement, or be addressed more directly by Fed Chairman Ben Bernanke at a news conference on Wednesday.
A new framework could provide guidance on policy triggers and might be used to justify another round of bond purchases in the months ahead.
U.S. economic signals, while still weak, have improved somewhat since the Fed last met in September, when it took new steps to bolster spending and investment through a measure aimed at lowering long-term borrowing costs. Third-quarter gross domestic product grew a 2.5 percent annual rate, up sharply from the second quarter's paltry 1.3 percent clip.
This should give policymakers enough breathing room to hold policy steady for now, despite a 9.1 percent jobless rate that refuses to budge.
While we don't expect any additional actions at this time, it will be important to focus on the language in the press release, said Paul Ballew, chief economist at Nationwide and a former Fed staffer. It is increasingly likely that the FOMC will be providing the groundwork for additional steps in early 2012.
The Fed is expected to issue a statement at the conclusion of its meeting at about 12:30 p.m. (1815 GMT) on Wednesday.
The new steps could include more specific economic markers to guide Fed policy, which has been advocated by Chicago Federal Reserve Bank President Charles Evans, but they but could also take the form of further bond purchases.
The Fed is already scheduled to release its quarterly forecasts for economic growth, inflation and joblessness, and could use these as a template for any new framework that provides more explicit policy guidance.
The forecasts will be issued at 2 p.m. (1800 GMT), and Bernanke will follow their release with a news conference 15 minutes later.
Following a highly publicized speech by Fed Governor Daniel Tarullo on October 20 that advocated fresh financial help for the mortgage sector, many analysts are now betting the Fed will also make another large push into the mortgage market.
That would represent somewhat of a policy U-turn for a central bank that until recently had committed to bringing its $2.8 trillion balance sheet back in the direction of its precrisis composition, in which it held primarily Treasury assets rather than mortgage-linked securities.
In September, the Fed took a baby step to offer more support for housing, saying it would reinvest the proceeds from maturing mortgage-backed securities it holds in its portfolio back into the MBS market.
The Fed has already offered unprecedented stimulus to the U.S. economy in the wake of a devastating recession that wiped out over 8 million jobs. It slashed official interest rates to effectively zero and engaged in two rounds of large-scale bond purchases.
(Reporting by Pedro Nicolaci da Costa; Editing by Neil Stempleman)