The Federal Reserve is unlikely to raise interest rates before next year, says Richard Clarida, global strategic adviser for money manager Pimco.
“The Fed has never hiked until they have seen a sustained decline in unemployment,” now 10 percent, he told Bloomberg.
“By the Fed’s own forecast, that is at least a year away.”
And thus, so is a rate hike, Clarida says.
“I don’t think the Fed’s going to do anything with rates until 2011 or perhaps very late in 2010.”
In addition to improvement in the labor market, the Fed would want to see durable sources of demand in the economy before it raises rates, Clarida says.
“We had very modest growth in the third quarter (2.2 percent) and perhaps somewhat stronger. growth in fourth quarter,” he said.
“But all that is being driven by an inventory rebound and some temporary fiscal stimulus. The Fed’s going to want to see some durable demand from consumers, exports and investment.”
It’s too soon to say the consumer sector has stabilized, Clarida says.
“If you believe as I do that the household sector in the next five years will be deleveraging, that means there will be more (trouble) to come.”
David Rosenberg, chief economist for Gluskin Sheff & Associates, goes even further than Clarida.
He told The Wall Street Journal that economic weakness will keep the Fed from raising rates for two years.
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