Slow-healing job market to stay Fed’s hand: poll

WASHINGTON (BestGrowthStock) – The economy will grow steadily through 2011, although not swiftly enough to restore even half the jobs lost in the recession, according to a monthly survey of economists released on Saturday.

While the overwhelming majority of those polled in the Blue Chip survey thought unemployment peaked last October at 10.1 percent, they predicted it would come down only gradually.

That will probably encourage the Federal Reserve to move slowly and cautiously in raising its benchmark interest rate from near zero, where it has been since December 2008.

Three out of four thought the Fed would begin hiking rates this year, but the consensus view held that the Fed funds rate would rise to only 0.7 percent by the end of 2010, and 2.4 percent by the end of 2011. When the recession started in December 2007, the benchmark rate was 4.25 percent.

The consensus predicted average monthly job gains of 117,000 this year and 202,000 next year, very close to projections from the White House in President Barack Obama’s most recent economic report to Congress.

At that rate, the economy would add about 3.8 million jobs by the end of 2011, less than half the number lost since the start of the recession in December 2007.

Overall, the poll showed economists expect economic growth of 2.9 percent this year and 3.2 percent next, on a fourth-quarter over fourth-quarter basis, unchanged from the previous month’s survey.

The consensus opinion was that private demand would pick up moderately over the course of this year, offsetting waning contributions from inventory adjustments and fiscal policy.

However, the economists thought the biggest risk was that job and wage growth would prove insufficient to produce a self-sustaining recovery as fiscal stimulus fades.

With so much slack in the labor market, the poll showed economists expect inflation to remain subdued, another factor likely to encourage the Fed to tighten only cautiously. Core consumer inflation, which strips out volatile food and energy costs, may slip to a record low in 2010, they said.

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(Reporting by Emily Kaiser; Editing by Dan Grebler)

Slow-healing job market to stay Fed’s hand: poll