WASHINGTON (AP) — Renewed questions about the economy's health and uncertainty surrounding the government's budget fight will likely lead the Federal Reserve on Wednesday to maintain the pace of the stimulus it's supplying to the economy.
That expectation marks a reversal from just six weeks ago, when almost everyone expected the Fed to start trimming its $85 billion in monthly bond purchases. The bond buying is intended to keep long-term interest rates low to help the economy rebound from the Great Recession.
The Fed is to announce its decision in a statement after a two-day policy meeting.
The central bank surprised investors and economists at its last meeting in September when it chose not to reduce its bond buying. Since then, a 16-day partial government shutdown shaved an estimated $25 billion from economic growth this quarter. And a batch of tepid economic data pointed to a still-subpar economy.
Now, few think the Fed will reduce its stimulus any time soon. Many analysts now predict the Fed will maintain the pace of its bond purchases into next year.
"I think March is now the earliest that any reduction in bond purchases will happen," said Diane Swonk, chief economist at Mesirow Financial.
By then, Fed members expect to have seen several months of stronger job growth. They also expect Congress to have resolved its budget impasse.
If the Fed does start slowing its stimulus in March, it will have left its policy unchanged not just this week but also at its next meeting in December and at its subsequent meeting in late January.
The January meeting will be the last for Chairman Ben Bernanke, who is stepping down after eight years. President Barack Obama has chosen Vice Chair Janet Yellen to succeed Bernanke.
Assuming that Yellen is confirmed by the Senate, her first meeting as chairman will be in March. Many economists think no major policy changes will occur before a new chairman takes over.
Congress' budget fight has clouded the Fed's timetable. Though the government reopened Oct. 17 and a threatened default on its debt was averted, Congress adopted only temporary fixes. More deadlines and possible economic disruptions lie ahead.
A House-Senate conference committee is working toward a budget accord. But wide differences separate Democrats and Republicans on spending and taxes. Without a deal by Jan. 15, another shutdown is possible. Congress must also raise the government's debt ceiling after Feb. 7. If not, a market-rattling default will remain a threat.
The standoff has led economists to trim their forecasts for economic growth in the October-December quarter. The Conference Board said Tuesday that its index of consumer confidence dropped to 71.2 in October, the lowest level since April. The decline was attributed, in part, to the government shutdown.
Employers added just 148,000 jobs in September, a steep slowdown from August. And temporary layoffs during the shutdown are expected to depress October's job gain.
In June, when Bernanke suggested that the Fed could reduce its bond buying by year's end, the Dow Jones industrial average plunged 560 points in two days. Many investors feared that the Fed might remove its support prematurely and derail an already subpar recovery from the recession.
Interest rates rose, too. The increase particularly in mortgage rates, before the Fed had even begun to change policy, alarmed the central bank. Higher mortgage rates could dampen the gains in housing, which has been a rare bright spot for the economy.
Given the panic among investors when Bernanke raised the prospect that the Fed would slow its bond purchases, analysts think any pullback will be very gradual.
"The one thing Janet Yellen will not want to do is start her term by making a mistake," said Brian Bethune, an economics professor at Westmont College in Santa Barbara, Calif. "She will be extremely cautious and will try to signal that the Fed is starting to back off its bond purchases without causing the kinds of effects we saw in the summer."
This week's meeting is the first since Obama announced Oct. 9 his choice of Yellen to be chairman. David Jones, chief economist at DMJ Advisors and the author of several books on the Fed, said her status could change the dynamics.
"Bernanke is essentially a lame duck, and Yellen has not yet taken over," Jones said. "It will make the Fed more cautious."
Sen. Rand Paul, R-Ky., has said he will oppose Yellen's nomination unless the Senate votes on a bill he's sponsoring to subject the Fed's rate decisions to review by the Government Accountability Office.
Yellen is still expected to win Senate confirmation, but a vote by the full Senate may not come until January. The Senate Banking Committee is considering holding a hearing on the nomination Nov. 14.
Once the Fed starts trimming its bond purchases, economists foresee reductions of $10 billion to $20 billion a month as long as the economy improves consistently. Some analysts think the Fed could finish its purchases by the end of 2014.
"But if something goes wrong, then they will stop or at least slow down the reductions," said David Wyss, a former chief economist at Standard & Poor's and now an economics professor at Brown University.
BAGHDAD (AP) — The wave of attacks by al-Qaida-led Sunni extremists that has killed thousands of Iraqis this year, most of them Shiites, is provoking ominous calls from Shiite leaders to take up arms in self-defense.
They generally insist they'll do it legally, under the banner of the security forces. But Iraq's young democracy is still struggling, nearly two years after U.S. troops withdrew, and the specter of armed Shiite and Sunni camps revives memories of the sectarian fighting that took the country to the brink of civil war in the mid-2000s.
Since April, bombings and shootings have killed more than 5,500 people. Averaging at least two a week, they target outdoor markets, cafes, bus stations, mosques and pilgrimages in Shiite areas.
Iraq's Shiite prime minister, Nouri al-Maliki, who will meet with President Barack Obama on Friday, says he wants American help in quelling the violence.
Departing for Washington, he appealed for quicker delivery of offensive weapons such as helicopters that Baghdad says it needs.
Since late December, Iraq's minority Sunnis have been protesting what they perceive as discrimination and tough anti-terrorism measures against them by the Shiite-led government. The Sunni attacks followed a government crackdown on a Sunni protest camp in the northern town of Hawija in which 44 civilians and one member of the security forces dead, according to U.N. estimates.
Now high-profile calls are being made for Shiites to play a role in their own defense by creating armed "popular committees," attached in some form to the regular security forces. The idea raises the specter of some of Iraq's darkest years following the 2003 U.S.-led invasion that toppled Saddam Hussein's Sunni-led regime, paving the way for long-repressed majority Shiites to seize power.
Iranian-backed Shiite death squads roamed the city from 2006-2008, killing Sunnis by the dozens and dumping their often mutilated bodies on the streets or in the river in retaliation for the devastating bombings and suicide attacks blamed on Sunni insurgents.
It was a cease-fire by militia leader and anti-American cleric Muqtada al-Sadr, along with a Sunni revolt against al-Qaida in Iraq and a series of U.S.-Iraqi offensives that helped quell the bloodshed. While Iraqis continued to face near-daily attacks, they hoped the days of rampant sectarian warfare were behind them. Now a politician, Al-Sadr has urged calm among his followers and made no public statements about the calls to take up arms to protect Shiites.
Zuhair al-Araji, a Sunni lawmaker, pointed out that the insurgents are targeting not only Shiites but moderate Sunnis, and that arming Shiite groups would backfire. "We are worried that some militias will infiltrate these proposed committees and we will see grave consequences," he said.
But Jassim Mohammed al-Fartousi, whose 24 year old son was among some 80 people killed in a suicide attack Sept. 21, reflects growing public demand for a response.
"The government and the security forces are incompetent," he said. "The popular committees will make us feel safe."
The civil war in neighboring Syria is also stoking the tensions as it takes on increasingly sectarian undertones, with many Shiites traveling to the country to support President Bashar Assad's government against mainly Sunni rebels.
Qais al-Khazali heads a feared Shiite militia, Asaib Ahl al-Haq (Band of the Righteous), an Iranian-backed group that repeatedly attacked U.S. forces in Iraq and says it is sending fighters to Syria to support government forces against Sunni-led rebels. He spent years in U.S. detention but was released after he was handed over to the Iraqi government.
Last year, the group decided to lay down its weapons and join the Iraqi political process, a move welcomed by al-Maliki. But addressing a conference of tribal leaders and clerics on Oct. 9, al-Khazali said his group needed to react to the "killings and destruction."
He said his "committees" would not participate in raids, but would cooperate with security forces in "patrolling their areas and setting up roadblocks."
Still, the security forces are supposed to be nonsectarian, and the suggestion of a Shiite militia in league with a Shiite prime minister's security forces is sure to heighten Sunni distrust.
Ali al-Moussawi, al-Maliki's spokesman, sounded lukewarm to the idea, saying the security forces "do not need armed committees; they need help with intelligence."
The law bans the formation of armed groups outside the state security forces, but the government made an exception for the Sunni militia formed by U.S. forces to fight al-Qaida.
Also calling for Shiite self-defense measures are Shiite lawmakers, one of them affiliated with Al-Maliki's parliamentary bloc, and some clerics connected to parties with militant wings.
Earlier this year, Wathiq al-Batat, a Shiite cleric who was a senior official in the Hezbollah Brigades in Iraq, formed what he calls the Mukhtar Army to protect Shiites. He claims to have more than 1 million members, a number that has not independently verified.
In an interview with the Beirut-based Iraqi satellite channel al-Sumaria last week, he said his militia was "well-intentioned" and wouldn't attack Sunnis as such, only "takfiri" groups, a term applied to Sunni radicals.
Al-Batat demanded that in order to be within the law, some of his followers should be integrated into the Defense or Interior Ministries to work with the security forces.
Despite some attacks on Sunni mosques following Sunni actions, Shiite reprisals are far less intense than they were in the tit-for-tat bloodshed of 2006-2007, when Sunnis would be snatched off the streets and killed and many families were driven from their homes.
But that may change if the "popular committees" come into being, some warn.
Hadi Jalo, a political analyst in Baghdad, said the government "could implicitly give the green light to some armed groups to help the security forces struggling to put an end to violence and to ease the pressure from the public."
Shwan Mohammed Taha, a Kurd who serves on the parliament's defense and security committee, warned such a move could prove a turning point.
"The atmosphere is already tense and such move will lead to the militarization of society and then to all-out civil war," he said.
BOSTON (AP) - Sports championships aren't rare in Boston anymore, and security officials are drawing on what went right - and wrong - during recent victory celebrations as the Red Sox look to claim another title.
The Red Sox return to Fenway Park on Wednesday needing one win in against the St. Louis Cardinals to win their third World Series since 2004.
Meanwhile, police are also dealing with a visit by President Obama, who'll be in town hours earlier Wednesday to discuss his health care reform.
City officials are confident both events will go smoothly. But they're tightening traffic restrictions, increasing police presence and asking the public to keep any Red Sox victory celebrations safe.
Boston Police Superintendent-in-chief Daniel Linsky said police will be engaging with the public and working to keep the crowd spread out and manageable.