Inflation in the U.S. through 2012 will fall short of the Federal Reserve’s long-term goal as growth and employment are slow to rebound, according to economists surveyed by Bloomberg News.
The Fed’s preferred price gauge, which is tied to consumer spending and excludes food and fuel costs, will climb 1.2 percent next year and 1.5 percent in 2012 on average, according to the median forecast of economists polled from Oct. 4 to Oct. 12. Most policy makers project those prices will increase 1.7 percent to 2 percent in the long run.
Economists cut gross domestic product forecasts for the next two years as a lack of jobs limits consumer spending, the biggest part of the economy. Stocks and Treasury securities have rallied since the Fed met last month as investors bet central bankers will pursue large-scale asset purchases to lower borrowing costs, spur the recovery and prevent prices for slowing further.
Low inflation “provides the Fed with additional reason to engage in quantitative easing,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York. “Price growth will be limited by the moderate recovery expected in consumer spending, and that would be in keeping with expectations of a relatively high unemployment rate.”
The Fed will keep its benchmark interest rate on overnight loans between banks near zero through 2011, according to the survey median, longer than previously estimated. The rate has been in a range of zero to 0.25 percent since December 2008.
After its most recent meeting on Sept. 21, Fed policy makers said too-low inflation would warrant looser monetary policy. Minutes of the meeting, released yesterday, said central bankers were prepared to ease “before long” and weighed strategies for raising inflation expectations. The Fed next meets November 2-3.
The Standard & Poor’s 500 Index yesterday closed at the highest level in five months as the minutes showed policy makers were ready to pump more cash into the economy through large- scale asset purchases, a strategy known as quantitative easing. The yield on the two-year note touched a record low 0.327 percent.
The world’s largest economy will expand 2.4 percent next year, down from last month’s 2.5 percent projection and less than the 2.7 percent forecast for this year, according to the median estimate of 60 economists in the Bloomberg survey. In 2012, growth will accelerate to 3 percent, less than September’s 3.1 percent median forecast.
The world’s largest economy grew at a 1.7 percent annual pace in the second quarter after expanding at a 3.7 percent rate the previous three months, according to the Commerce Department. The economy contracted 2.6 percent last year, the biggest decline since 1946.
The survey showed 41 economists provided inflation forecasts for 2011 and 27 for the following year.
Household purchases, which account for about 70 percent of the economy, will climb at a 2 percent rate in the last three months of this year and 2.2 percent next year, the same as previously forecast, the survey showed. Consumer spending rose 3 percent on average over the past three decades and fell 1.2 percent last year, the biggest decrease since 1942.
Elevated joblessness will probably keep holding back spending. Unemployment will average 9.3 percent in 2011 and 8.7 percent the following year, according to the survey. A month ago, economists had projected a 9.2 percent average rate for 2011 and 8.3 percent for 2012.
The jobless rate was 9.6 percent in September for a second month, the Labor Department said last week. Joblessness reached a 26-year high of 10.1 percent a year ago.
“The Fed is definitely going to be missing its mandate in terms of sustainable growth and full employment over the next year to two years,” said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston.
Levi Strauss & Co., the maker of jeans and Dockers pants, is among companies saying that spending on advertising and promotions to spur sales is hurting net income, which slipped 32 percent to $28 million in the quarter ended Aug. 28. Third- quarter revenue at the San Francisco-based company climbed 6.6 percent to $1.11 billion.
“It’s still very pessimistic out there, still driven primarily by the lack of jobs,” Levi’s Chief Financial Officer Blake Jorgensen said by telephone from San Francisco yesterday. “Consumers are clearly buying products that they need for their day-to-day lives,” said Jorgensen, 50. “There’s not frivolous spending in any way.”
Pessimism on the economy and jobs help explain why Democrats are at risk of losing control of the House of Representatives in the Nov. 2 elections.
The general Republican message of less spending, lower taxes and repeal of the health-care overhaul is connecting with voters in a Bloomberg National Poll. Pluralities of those polled supported overturning the health-care measure -- President Barack Obama’s signature legislative accomplishment -- and back the “Pledge to America” that offers a road map for how Republicans would govern if they win congressional majorities.
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