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Fed Officials Should Set Stage for Asset Purchases, Romer Says

Federal Reserve officials may be “softening up the ground” for another round of asset purchases or another policy change when they meet tomorrow, said Christina Romer, former chairman of the White House Council of Economic Advisers.

“It would be unnerving if they were to come out with something big and bold tomorrow,” Romer, 52, said of the Fed in a television interview on Bloomberg Television’s “Street Smart” with Carol Massar and Matt Miller.

“What they probably will and should be doing is softening up the ground for either some additional quantitative easing, some change in their overall policy framework or some communication about what they expect to happen to their balance sheet,” said Romer, an economics professor at the University of California, Berkeley and a former chairman of the White House Council of Economic Advisers.

The Fed in June completed a $600 billion Treasury bond-purchase program, known as quantitative easing, aimed at lowering long-term borrowing costs. Today’s drop in global stocks, further fueled by concerns over Europe’s debt crisis, adds to pressure on the central bank, which is confronting a slowing U.S. economy and unemployment stuck above 9 percent. The policy-making Federal Open Market Committee plans to hold a regularly scheduled one-day meeting tomorrow and release a statement at about 2:15 p.m.

Even as central bankers contend with slow employment growth and the first downgrade of the nation’s top credit rating, they will likely take a “balanced approach” in tomorrow’s statement, Romer said.

“The Fed is in a tough position tomorrow,” she said. “What we’ve seen coming out of Europe, when the European Central Bank comes out with a dramatic announcement, that tends to make people more nervous.”

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