By Pedro Nicolaci da Costa
WASHINGTON (Reuters) - The Federal Reserve began a two-day meeting on Tuesday that will likely show the central bank is slightly more upbeat on the economy but in little hurry to raise borrowing costs.
Investors wishing for clues into the prospect of a further easing of monetary policy from the U.S. central bank may be disappointed. U.S. economic growth has been just firm enough to weaken the case for additional unconventional stimulus through Fed purchases of government or mortgage bonds.
Still, the Fed's policy-setting panel will probably try to curb any premature market expectations for eventual interest rate hikes by repeating that the benchmark federal funds rate is likely to remain near zero until at least late 2014.
"There won't be much to keep the Fed from their accommodative policies for the foreseeable future," said Victor Li, a former Fed staffer and economics professor at the Villanova School of Business.
The Fed will release a statement outlining its views on policy and the economy at around 12:30 p.m. (1630 GMT) on Wednesday.
While no policy decision appears imminent, the Fed's array of new policy transparency steps should keep economists busy discerning recent shifts in the sentiment of policymakers.
For one thing, the Fed will release its latest round of quarterly forecasts at 2 p.m. (1800 GMT), and Fed Chairman Ben Bernanke will follow with a news conference at 2:15 p.m. (1815 GMT), where he will likely be peppered with questions on the chances of more easing.
Most analysts think Bernanke will do whatever he can to keep his options open.
Since the central bank's last round of GDP, unemployment and inflation forecasts in January, the U.S. jobless rate has come down to 8.2 percent from 8.5 percent and the financial situation in Europe has stabilized, although it still appears troubling.
Policymakers will also offer individual projections for when they think the first interest rate increase should come and how quickly borrowing costs should rise - though these will appear on charts that do not link them to specific officials' names.
"There is a risk that someone with a first (rate) hike in 2014 could drift into seeing that first hike in 2013," said Michael Feroli, an economist at JPMorgan.
If that's the case, the stock market faces the risk of a selloff as it prices out expectations for further monetary easing from the Fed.
In response to the deepest recession in generations, the Fed lowered benchmark overnight rates to effectively zero in December 2008 and more than tripled its balance sheet by purchasing some $2.3 trillion in government and mortgage bonds to keep down long-term borrowing costs.
According to a Reuters poll published last week, economists have dialed down expectations for a third round of bond purchases somewhat. The respondents now see a 30 percent chance of more bond buys, down from 33 percent in a poll in March. <ECILT/US>
A report early this month that showed job growth slowed sharply in March kept some hope of easing alive, and economists will look eagerly to the next round of job data on May 4 for more clues on where U.S. monetary policy may be heading.
(Editing by Neil Stempleman)