NEW YORK – The U.S. economy will grow at a 2.1% pace this year and next, according to SIFMA's 2012 Mid-Year Economic Outlook, and nearly two out of every three respondents expect the fed to use further quantitative easing.

Members of SIFMA's Economic Advisory Roundtable had forecast 2.2% growth in its 2011 end-year prediction.

Most respondents (65%) expected further quantitative easing (QE3), as “subpar GDP and weak job growth, rising deflationary risks, and potential contagion from Europe” were names as possible “triggers for a third round of quantitative easing.”

Respondent expect the easing announcement at the current FOMC meeting, with long-term securities purchases completed by September, although some see QE3 the extension of Operation Twist.

Unemployment is seen at 8.1% this year and 7.8% next year, with non-farm payrolls adding 1.9 million jobs this year and 1.8 million next.

The survey found expectations for consumer spending to dip from 2.2% to 2.1% next year.

The personal consumption expenditures (PCE) chain price index, measuring inflation, is seen increasing 1.8% this year and 1.7% next year, while the core is expected to be up 1.8% both years.

More than 85% of respondents said inflation is not a concern, while “several respondents noted that deflationary risk was higher than before. One noted that, aside from the volatile commodities prices, there were no real fundamental drivers for higher inflation.”

Respondents expect the Fed funds-to-ten-year Treasury yield curve to steepen over the remainder of 2012, most see the Treasury bill less LIBOR spread to remain unchanged.

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