You can now read 5 articles in a month for free on BostonGlobe.com. Read as much as you want anywhere and anytime for just 99¢.

Better economy makes Fed action more potent

No major moves expected at next policy meeting

WASHINGTON — Federal Reserve chairman Ben Bernanke and the rest of the Federal Reserve policy committee gather again this week for what is sure to be a less dramatic meeting than last month, when they unveiled a new program of bond buying to try to drive down unemployment.

But while major changes in policy will probably be scarce when the Federal Open Market Committee unveils its handiwork Wednesday afternoon, the events of the six weeks since its last big change have shown the real importance of the Fed’s new approach to policy.

Continue reading below

The economic data have improved since that Sept. 13 announcement. At the time of the meeting, for example, Macroeconomic Advisers (which has an economic forecasting model similar to that used internally by the Fed) estimated that third-quarter gross domestic product rose at a 1.5 percent annual rate; now it estimates that number to be 2 percent.

The unemployment rate plunged to 7.8 percent in September from 8.1 percent in August. Housing starts, retail sales, and consumer confidence numbers have all soared.

That improvement would seem to call into question the rationale for the Fed’s decision to pump $85 billion a month into the economy.

Maybe growth is stronger than Bernanke and company realized, and they were faked out by a few months of bad data.

Quite the contrary. Even leaving aside that some other indicators of the economy’s recent performance aren’t so hot (particularly measures of business investment and hiring), the uptick in growth could make the Fed’s decision even more potent.

A key part of the Fed’s new strategy last month was to announce that the Open Market Committee ‘‘expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.’’

In other words, the central bank aimed to assure the world that it would not pull away the support strut of low interest rates until the economy was well along in recovering, so long as inflation does not threaten to get much above the Fed’s 2 percent target.

It was an effort to undo a pattern that had been in place for the last three years of weak economic recovery. Whenever there has been a quarter or two of decent growth, investors have started speculating about the exit, seeing the interest rate hikes by the Fed as being just around the corner.

But now, with the new assurances from the Fed, bond markets do not seem to be as jittery as they once were.

Loading comments...
Subscriber Log In

We hope you've enjoyed your 5 free articles'

Stay informed with unlimited access to Boston’s trusted news source.

  • High-quality journalism from the region’s largest newsroom
  • Convenient access across all of your devices
  • Today’s Headlines daily newsletter
  • Subscriber-only access to exclusive offers, events, contests, eBooks, and more
  • Less than 25¢ a week
Marketing image of BostonGlobe.com
Marketing image of BostonGlobe.com
Already a subscriber?
Your city. Your stories. Your Globe.
Yours FREE for two weeks.
Enjoy free unlimited access to Globe.com for the next two weeks.
Limited time only - No credit card required!
BostonGlobe.com complimentary digital access has been provided to you, without a subscription, for free starting today and ending in 14 days. After the free trial period, your free BostonGlobe.com digital access will stop immediately unless you sign up for BostonGlobe.com digital subscription. Current print and digital subscribers are not eligible for the free trial.
Thanks & Welcome to Globe.com
You now have unlimited access for the next two weeks.
BostonGlobe.com complimentary digital access has been provided to you, without a subscription, for free starting today and ending in 14 days. After the free trial period, your free BostonGlobe.com digital access will stop immediately unless you sign up for BostonGlobe.com digital subscription. Current print and digital subscribers are not eligible for the free trial.