The Federal Reserve Board is likely to leave the federal funds rate in a target range of 0% to 0.25% until next spring and then raise it to 1.25% by the end of next year, in the view of forecasters surveyed by the National Association for Business Economics, which released the findings Wednesday.

The 45 group members, surveyed between April 27 and May 11, see signs that the economy is “stabilizing,” and they expect the gross domestic product to grow in the second half, but they expect recovery to be only gradual and marked by continued labor market deterioration. They lowered their growth forecast from February.

The forecasters expect inflation to “moderate” as economic “slack” mounts, but they see it picking back up next year.

“The federal funds rate will remain unchanged until next spring,” the NABE said. “Low inflation and high unemployment will keep the Fed sidelined until the second quarter of next year, at which time a sequence of rate hikes is expected to push the overnight rate to 1.25% by yearend.”

However, “this forecast carries considerable uncertainty,” the group said. “One-quarter of NABE panelists expects this key rate to be 50 basis points or lower, while another quarter expects it to exceed 1.5% by the end of 2010.”

— Market News International

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