Fed to hone message in final meet of the year

The Federal Reserve\'s top policy makers gather for their last meeting of the year on Tuesday, when they are expected to discuss the central bank\'s broadest communications overhaul in two decades. The one-day meeting is expected to see the Federal Open Market Committee keep interest rates near zero -- where they have now been for three years -- as it searches for other tools to juice the economy. Chief among those options are proposals that would see the Fed set much clearer objectives and better outline tactics to achieve them. Measures under consideration include setting a formal inflation target for the first time in Fed history, as well as issuing clearer guidance about future interest rate policy and FOMC members\' prescriptions for the economy. Far from being small tweaks, former Fed officials say this could be the most significant shift in the way the Fed deals with the public since 1994, when it agreed to announce interest rate actions. \"I think it is very important,\" said Marvin Goodfriend, an economist who was present at the 1994 meeting and who regularly attended meetings of the Federal Open Market Committee until 2005. While the Fed has long kept a presumed inflation target, an explicit goal could lock price expectations in place for years to come and offer markets more certainty at a time when turbulence has haunted investors. Supporters say a formal inflation target would provide an anchor for businesses aiming to make sound investment decisions. But whatever the Fed decides, the change is unlikely to enter into force tomorrow, but rather when the Fed meets in January or even March. The Fed is also expected to retain its promise to keep interest rates at \"exceptionally low levels... at least through mid-2013.\" \"Plans to enhance Fed communication, perhaps with numerical interest rate forecasts or guidance on the \'mid-2013\' promise, are also in the works, but won’t be decided on by this week,\" said IHS Global Insight economist Nigel Gault. The Fed also faces tough decisions over whether to prime the trigger for measures that could further stimulate the economy. While the US economy appears to have improved over the last few months, many fear the troubles that plague Europe could yet spell a double-dip recession in the United States. New measures could include extending asset purchases, or lower the rate at which it lends cash to banks. \"There is some thinking that the Fed could lower the discount rate following its move to bolster dollar funding for eurozone banks this month,\" said Gault. But the Fed also faces two delicate balancing acts: between providing more clarity and signaling a major policy shift; and measuring concerns about high unemployment against concerns about long-term inflation. Getting either wrong could upset the bank\'s delicate ideological balance. Throughout the economic crisis Fed policymakers have been at odds over how much emphasis to place on each plank of its dual mandate -- fostering employment and creating price stability. With unemployment at 8.6 percent and short-term prices stable, policy \"doves\" have called for decades of inflation-centered policy to be eased in favor of potentially inflationary stimulus. The ferocity of that debate could see new measures kicked into the New Year. \"December is not a good time to alter monetary policy, not the least of which because financial markets are less liquid and there is no (Fed) press conference scheduled,\" Nomura analysts said. \"We expect the policy statement to strive to communicate the likelihood that policymakers may adopt a new round of large-scale asset purchases in early next year.\"