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Captain Goldilocks - Part II

Fed likely to keep key interest rate at record low


WASHINGTON (AP) -- Faced with lurking dangers to the budding recovery, Federal Reserve policymakers are sure to leave a key interest rate at a record low to entice Americans to spend more and help the economic turnaround gain traction.

The economy started to grow again last quarter for the first time in more than a year, although there are uncertainties about the strength and staying power of the recovery, especially after government supports are removed.

Fed Chairman Ben Bernanke and his colleagues, wrapping up a two-day meeting Wednesday, are likely to note the country's economic and financial improvements. But they'll also warn that rising joblessness and hard-to-get-credit for many people and companies will restrain the rebound in the months ahead. Troubles in the commercial real estate market, where soured loans are contributing to bank failures, also remain a concern.

At its last meeting in late September, the Fed opted to stretch out into early next year a key program aimed at forcing down mortgage rates and providing support to the housing market. The central bank isn't expected to veer from that course Wednesday.

Wanting to nurture the recovery, the Fed is widely expected to keep the target range for its bank lending rate at zero to 0.25 percent. If it does, commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will stay at about 3.25 percent, the lowest in decades.

"I don't think there is confidence at this point that the economy is firing on all cylinders by itself," said Bill Cheney, chief economist at John Hancock Financial Services. "It is not ready to be weaned off the extra fiscal and monetary support."

Against that backdrop, many economists predict the Fed will maintain a pledge to keep rates "exceptionally low" for an "extended period." The hope is that super-low rates will spur consumers and businesses to spend more, supporting the recovery.

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