Fed Growth Outlook Key to Easing

As U.S. economic reports deteriorate, markets focus on Fed’s meeting next week.

Chairman Ben S. Bernanke told lawmakers last week the “central question” confronting the Federal Reserve at its next meeting is whether growth is fast enough to make “material progress” reducing unemployment.

The answer may well be no.

Investors Fled

Since the Federal Open Market Committee met on April 25, the yield on the benchmark 10-year Treasury note has fallen 36 basis points, or 0.36 percentage point, to 1.63 percent as investors fled risks in Europe and saw greater odds of new Fed accommodation. The Standard & Poor’s 500 Index during the same period has slumped 4.8 percent to 1,324.65 at 12:25 p.m. in New York.

Evans Comments

Chicago Fed President Charles Evans said on June 11 he would favor “pretty much any accommodative policy,” including buying bonds and extending Operation Twist, comments that helped push stocks higher.

Growth Forecasts

Wall Street analysts said the economy will expand at a 2.2 percent rate in 2012, according to the median response of 70 economists surveyed by Bloomberg News from June 1 to June 5. That’s down from 2.3 percent in April and May surveys.

Jobless Claims

In another sign of a struggling job market, Labor Department data today showed that first-time claims for unemployment benefits unexpectedly climbed by 6,000 last week to 386,000. A separate Labor Department report showed that the consumer-price index declined 0.3 percent in May, the most in three years, giving Fed policy makers more room to stimulate growth.

Bernanke’s Challenge

Presidents at Fed district banks have clashed this month over whether the economy needs more stimulus, highlighting the challenge Bernanke would face next week building a consensus behind any shift in policy.

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