Economists: Fed to Boost Rates Within Six Months

Monday, 08 Mar 2010 08:22 AM

 

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Most U.S. business economists expect the Federal Reserve to raise benchmark interest rates within six months by between a quarter and a half percentage point, according to a survey released on Monday.

A majority of economists in the National Association of Business Economists' semiannual survey found the Fed's current stance of rates near zero percent is appropriate. A growing number, however, believe the U.S. central bank's policy's are too stimulative, according to a poll of 203 members taken Feb. 4-22.

"A majority believes that a rise in interest rates is both likely and appropriate in the next several months," said NABE President Lynn Reaser.

The Fed has said continued high rates of unemployment and low inflation warrant holding rates exceptionally low for an extended period. Still, reports show the economy is recovering gradually, and some policy makers believe the Fed should begin to prepare markets for the beginning of the process of tightening financial conditions.

Economists polled in the NABE survey agreed that the end of the Fed's purchases of mortgage-backed securities would raise mortgage interest rates, with 42 percent seeing a bump of between a quarter of a percentage point and a half percentage point.

The Fed is on track to end a program of buying $1.25 trillion in mortgage-backed securities at the end of this month. The program was launched to provide extra support for the economy after policy-makers chopped rates to near zero.

A large share — 44 percent — thought inadequate regulatory oversight was the primary contributor to the deep financial crisis that plunged the economy into a painful recession.

Most of the economists thought trimming the Fed's regulatory powers, as some lawmakers have proposed, would make it less effective in conducting monetary policy.

A rising share of the economists thought current fiscal policy is about right — at 44 percent, the highest percentage since 2007. However, a large majority said another fiscal stimulus package is not needed.

President Barack Obama signed a $787 billion stimulus package in February 2009. U.S. congressional Democratic Party leaders plan to advance a series of smaller job-creation bills to avoid public sticker shock and keep their job-creation efforts in the news.

Almost 80 percent of the economists polled said the country's long-term budget deficit could hurt U.S. ability to borrow.

© 2014 Thomson/Reuters. All rights reserved.

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