Each month Bloomberg surveys 60 to 70 economists to get their estimates of where Fed Funds, the 2-year Treasury, and the 10-year Treasury will be over the next several quarters. I take this data and interpolate for the points in between the survey data to create the attached report. This allows us to get a broad view of where various economists see interest rates going over the coming quarters.
All of the talk from the Fed is of rates staying low for a long time to come. Just recently Janet Yellen said that the Fed could conceivably leave the overnight rate at zero for “years”. Recent statements from the Fed also say that if we weren’t already at zero on Fed Funds then they’d be lowering rates right now…the economic picture is just that bad.
With a recovery nowhere in sight it looks like the only thing that could change the Feds mind on leaving rates at current levels is inflation. While the Fed would love to keep rates low long enough to let the economy work through its problems, the government continues to spend money like a drunken sailor on a 72 hour liberty. How long that can continue without igniting inflation concerns is another matter.
The Fed for its part insists that if inflation reignites they will have the political independence necessary to raise interest rates…even in the face of an economy that is still stalled. It will be a very interesting story to watch if we have 10% unemployment and the Fed has to begin tightening. The terms “stagflation” and “double-dip recession” have been getting more air time recently…“recovery” not as much. The economy is in such poor shape that even the politicians are pushing back talk of recovery. Now we hear statements like “it may take years” for a recovery to take place.
The survey data below are the latest estimates from economists surveyed by Bloomberg. This can serve as a useful sounding board as we move into the second half of 2009.
If you have any questions on this material just let me know.
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