Tags: economists | Fed | rate | QE

WSJ Survey: Fed Won’t Stop Buying Bonds for Another Year

By Dan Weil   |   Tuesday, 19 Mar 2013 08:17 AM

Speculation is rife in financial markets about how long it will take the Federal Reserve to halt its quantitative easing (QE) and pull the federal funds rate up from its record low (zero to 0.25 percent).

The average forecast from a March 8-12 Wall Street Journal survey of 50 private economists is for the Fed to begin decelerating its monthly bond purchases in November. For now, the central bank is buying $85 billion of Treasurys and mortgage-backed securities a month.

The economists predict that the Fed will cease its bond buying in May 2014. And they project the Fed will start to consider raising the fed funds rate in June 2015, when the unemployment rate finally drops to 6.5 percent.

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The central bank has said it doesn’t plan on hiking rates until the jobless rate hits that level. Unemployment was 7.7 percent in February.

Even after the Fed stops its QE, the economists don’t anticipate the Fed’s balance sheet will return to a normal size until December 2019.

The Fed has pushed its balance sheet up to $3 trillion with more than $2 trillion of QE over the past five years.

"It is a new era for monetary policy," Julia Coronado, chief economist for BNP Paribas, tells The Journal.

While some economists think the Fed has gone too far in its massive easing program, Jerry Webman, chief economist of Oppenheimer Funds, disagrees.

“I would argue that the Fed saw that a lot of money disappeared in the financial crisis,” he tells Newsmax TV in an exclusive interview. “They set about replacing that money by intervention. I think that was appropriate.”

Webman agrees with other economists that the Fed won’t reverse its easing quickly. “What they have talked about, the term that you’ve started hearing, is tapering,” he says.

The Federal Open Market Committee is holding a two-day meeting this week and widely expected to keep interest rates near zero.

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