Markets on look out for Federal Reserve easing

STUBBORN unemployment is expected to prompt US Federal Reserve chief Ben Bernanke into taking further action to stimulate the economy later this month – which might include a further round of quantitative easing.

In the weakest payroll stats since last September, August’s figures showed no fall in unemployment, with July’s job creation numbers revised down from 117,000 to 85,000. Unemployment stuck at 9.1 per cent.

“The market is now factoring in the prospect of action at the next meeting”, said Michael Hewson, analyst with CMC Markets.

Economists are unsure as to the stimulus package the Fed might choose, though. “We do not know whether the Fed will tilt toward an extension of the duration of its bond portfolio, also known as ‘operation twist’, or whether they will choose to simply expand their balance sheet in much the same way as QE2,” said Julia Coronado from BNP Paribas.