By JEANNINE AVERSA AP Economics Writer
WASHINGTON Oct 24, 2006 (AP)— Federal Reserve policymakers are likely to keep their finger on the interest-rate pause button, giving America's borrowers another break heading into the congressional elections.
Fed Chairman Ben Bernanke and his central bank colleagues opened a two-day meeting Tuesday against the backdrop of slowing economic growth and receding energy prices. Their interest rate decision will be announced Wednesday.
"My guess is that they will stay on the sidelines until something tells them to get off," said Dartmouth College economics professor James Feyrer. "My sense is that they have no real reason to go up or down right now so they are doing nothing."
It they do that, it would mark the third time in a row in which they kept an important interest rate at 5.25 percent. That would mean commercial banks' prime interest rate for certain credit cards, home equity lines of credit and other loans would stay at 8.25 percent.
This week's meeting of the Federal Open Market Committee the group of central bankers that sets interest rate policy in the United States is the last before the Nov. 7 elections. Economic conditions are expected to play a role in voters' choices at the polls.
By holding rates steady, the Fed would stay on neutral political ground heading into the elections, political scientists and economists observed.
"The economic environment is such that there is no conflict between the appropriate conduct of monetary policy and politics," said Mark Zandi, chief economist at Moody's Economy.com. "Good policy and politics can easily go hand in hand in this election but you can envision a case where that might not happen."
If the Fed were to boost rates right before the election a move that would hit many voters in their pocketbooks incumbents might suffer. On the other hand, if the Fed were to cut rates reducing borrowing costs for millions of Americans there could be political fallout if that action were seen as an urgent effort to rescue a sick economy.