Tags: USA Today | economists | Fed | bonds

USA Today Survey: Top Economists See No End in Sight to Loose Fed Policies

By John Morgan   |   Wednesday, 20 Feb 2013 10:53 AM

A new survey of top economists shows the majority believe the Federal Reserve will continue its bond-buying spree through the end of 2013 in its lengthening effort to spur economic growth.

USA Today polled 46 economists to get their take on the Fed’s pump-priming program.

Sixty percent forecasted the Fed will keep buying long-term Treasury bonds until after Jan. 1, 2014, and 58 percent said the Fed will likewise keep buying mortgage-backed securities (MBS) past that date.

Editor's Note:
Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

“I think the economy is sufficiently sluggish that [the Fed] can continue these purchases,” said Sean Snaith, director of the University of Central Florida’s Institute of Economic Competitiveness.

The Fed is trying to boost bond prices and lower yields with its purchases of $45 billion in Treasurys and $40 billion of MBS each month. The Fed has said it would continue the purchases until it sees a substantial improvement in the labor market outlook.

The strategy is intended to lower interest rates to drive purchases of homes, cars and factory gear, even as it forces investors into stocks and riskier assets, according to USA Today.

The minutes from the Fed’s December meeting showed some members want the bond buying to stop by year’s end, while others want it to end earlier.

Some members say that since the Fed’s bond portfolio is now more than $3 trillion, they fear it could make it hard to sell them quickly enough to head off eventual inflation, USA Today reported.

Kansas City Fed Chief Esther George was the lone dissenter to the bond purchases at the January meeting.

Atlanta Fed President Dennis Lockhart, considered a centrist on the central bank’s board, told Reuters he believes the Fed must keep buying bonds until the end of the year because of the weak labor market.

“I do believe that we’re not going to see enough improvement in the very short term to claim victory on the substantial improvement idea,” he noted. “Therefore my recommendation would be to continue through the end of the second half” of the year.

Lockhart said the biggest threat to growth continues to be budget battles and attendant uncertainty in Washington. On March 1, $85 billion in automatic government spending cuts are set to take effect and a temporary bill funding the government expires in late March.

“There are simply a lot of hurdles in this race that we have to get over. Some combination of gridlock could really undermine confidence that seems to be building at the moment,” he told Reuters.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

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