Fed likely to keep aid in place

       With the economy starting to rebound but still fragile, Federal Reserve policymakers this week are expected to keep emergency programmes to encourage spending and borrowing intact. But to avoid unleashing inflation later on, they are likely to consider ways to rein in programmes designed to keep mortgage rates down and get banks to lend more freely.
       As the economy improves, the Fed will face more pressure to wind down some of its programmes. For now, Fed chairman Ben Bernanke and his colleagues probably will stay the course while striking a more optimistic tone at a two-day meeting that ends on Wednesday.
       "I think they are feeling more confident about the recovery," said Christopher Rupkey, economist at Bank of Tokyo-Mitsubishi.
       Fed policymakers are all but sure to keep interest rates at a record low near zero to nurture a tentative recovery.And they will probably stick with their goal of buying $1.45 trillion in mortgagebacked securities and debt issued by Fannie Mae and Freddie Mac by year's end. The programme is intended to lower rates on home mortgages and support the housing market.
       The real estate industry, which led the country into its worst recession since the 1930s, is starting to heal. Sales are firming. And prices in some markets are edging up after a dizzying plunge.
       Still, the housing market is being propped up by the Fed's programmes,and its health remains precarious. Foreclosures are expected to keep climbing.Soured loans will still weigh on banks.More homeowners are expected to go under water, meaning they owe their lender more than their home is worth.
       The Fed's efforts have helped lower mortgage rates. Rates on 30-year loans dipped to 5.04%, Freddie Mac reported last week. That was down from 5.07%the previous week and 5.78% a year earlier.
       "Given the delicate state of the housing market, Fed policymakers will be loath to make any major changes," economists said.
       "Why upset the apple cart and spook the market?" said Mark Zandi, chief economist at Moody's Economy.com."The economy and the housing market can still use the help."
       Still, some analysts think the Fed could opt to slow its purchases. It could buy less than the full $1.45 trillion by year's end. At the Fed's previous meeting in August, some Fed officials said a "tapering" of the mortgage-buying program "could be helpful," according to minutes of the private deliberations.
       At that meeting, policymakers said they would gradually slow the pace of a program to buy $300 billion in Treasury securities and shut it down at the end of October, a month later than previously scheduled. That programme is designed to force rates down for mortgages and other consumer debt to get Americans to spend more.
       But the programme's effectiveness has been questioned on Wall Street and Capitol Hill. Critics have complained that the Fed appears to be printing money to pay for the government's spending binge.
       Most economists think the Fed will keep the target range for its bank lending rate at zero to 0.25% through the rest of the year. 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%, the lowest in decades.
       Bernanke recently declared the recession "very likely over." Factory activity is growing. Consumer spending and home sales are stabilising, and carbuying got a lift from the "cash for clunkers" rebate programme. Some residential construction is picking up.
       But Bernanke warned that the pace of economic growth probably wouldn't be strong enough to generate many new jobs and prevent the unemployment rate from rising. The rate hit a 26-year high of 9.7% in August and is expected to top 10% this year.
       Inflation, meanwhile, is likely to remain tame for now. The weak job market means employers won't feel generous with wages. Idle plants also will help limit inflation.
       Even with a pick-up in production,factories are operating well below capacity. In light of consumer caution and expectations for a lethargic recovery,companies won't be likely to raise prices.