Banking & Financial Institutions

Economists expect Fed to keep rates low for most of next year

The Federal Reserve will keep interest rates historically low for at least another year, according to a recent survey of economists.

The survey found that of 25 economists surveyed, 16 said they thought the Fed would not raise rates until either the last quarter of 2011 or the first of 2012. Eight more expected an increase in interest rates to come later in 2012, with one believing rates would stay near zero into 2013.

Persistently high unemployment will be a likely culprit for the long-term low rates, the economists said. They expected unemployment would linger around 9 percent through 2011.

While there was a general agreement on interest rates, the economists were more divided on whether the Fed’s recent controversial policy decisions would actually boost the economy. The Fed has come under fire in recent weeks for its decision to buy back $600 billion of long-term Treasury bonds in yet another attempt to boost private lending. Several Republicans have criticized the move, saying it would lead to inflation.

Of the 11 economists who thought the policy would boost growth, just two thought it would come with increased inflation, while 12 thought the Fed’s policies would simply provide no significant economic impact. The economists expected on average that inflation would stay largely in check, with prices growing just 1.7 percent in 2011.

Despite pressure from the GOP on the policy decision, 22 of the 25 economists expect the Fed to follow through with its plan to buy $600 billion in bonds by the end of July. However, they also think it will mark the Fed’s last foray into “quantitative easing,” with just one predicting another round of purchases after the current one.


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