More economists at Wall Street's biggest bond dealers say the Federal Reserve will likely raise interest rates this year amid signs the US economy is pulling out of recession.
A quarter of the economists at the 24 so-called primary dealers raised forecasts and the majority said the central bank will increase its target for overnight loans between banks, or federal funds, to between 2.5 percent and 3.75 percent by year-end, according to a Bloomberg News survey yesterday.
An index of US manufacturing showed the economy is expanding for the first time since July 2000, a sign factories have boosted production to meet demand. Rising retail sales and durable goods orders, combined with falling weekly jobless claims, signal the recession that began a year ago may be over, they said.
They expect the world's largest economy to grow at about a 3 percent pace this year.
"We've turned the corner," said David Greenlaw, an economist at Morgan Stanley Dean Witter. "Manufacturing seems to be on the upswing, the consumer is in good shape and the labor market is improving."
Economists at Goldman, Sachs & Co abandoned last month's forecast of an additional rate cut.
Six economists including Steve Slifer at Lehman Brothers Inc, Cary Leahey at Deutsche Bank Alex Brown and Ian Morris at HSBC Securities USA Inc, raised forecasts for the central bank's target interest rate. The changes reflected expectations for an economic recovery fueled, in part, by the Fed's 4.75 percentage points of rate cuts last year.
"The Fed is concerned the rate reductions enacted after Sept. 11, while necessary at the time, will overheat the economy in 2003," said Leahy, who sees a 2.5 percent year-end target.
Four of the Fed's rate cuts totaling 1.25 percentage points came after the Sept. 11 terrorist attacks.
An increase in consumer and investment spending led to stronger-than-expected economic growth in the first quarter, he said. The first quarter-point increase will come at the Fed's Aug. 13 meeting and year-over-year growth will climb to 3 1/4 percent, he predicted.
Eleven of the economists expect the first increase in the fed funds target to come during the third quarter. Seven said the Fed would wait until the October-December period.
Fed Chairman Alan Greenspan's testimony to Congress on Wednesday provided evidence the central bank won't change its target or assessment of the economy when it meets on March 19, the economists said. All expect the Fed to leave its target unchanged at 1.75 percent next month, and 23 said policy makers will say the economy is still at risk of weakening.
Fed officials see only a "moderate expansion of consumption spending" in coming months, which means the strength of the recovery will depend on how quickly business investment accelerates, Greenspan said in his testimony.
"Greenspan is less optimistic, but he will be dragged along as the data show more momentum," Morgan Stanley's Greenlaw said.
"He's not there now, but by August, he may be more in synch."
Eleven reductions last year dropped the fed funds target to a 40-year low of 1.75 percent, helping to stimulate a home mortgage refinancing wave that injected more than US$50 billion into the economy. Consumer spending never faltered during the recession, helping the economy to grow at a faster-than-expected pace of 1.4 percent in the fourth quarter. The situation has been different for companies, which slowed their investments as profits fell. Sprint Corp lowered its capital spending for the year today to US$6.4 billion from US$6.8 billion.
"The recovery in overall spending on business fixed investment is likely to be only gradual," Greenspan said. "Growth will doubtless be less frenetic than in 1999 and early 2000."
That is why economists at Bear Stearns & Co expect the central bank to leave rates unchanged at 1.75 percent for the balance of the year.
"Given how weak the recovery is going to be, with no inflationary pressure, we don't see the need to tighten," said Conrad Dequadros, an economist at Bear Stearns.
NO HUMAN ERROR: After the incident, the Coast Guard Administration said it would obtain uncrewed aerial vehicles and vessels to boost its detection capacity Authorities would improve border control to prevent unlawful entry into Taiwan’s waters and safeguard national security, the Mainland Affairs Council (MAC) said yesterday after a Chinese man reached the nation’s coast on an inflatable boat, saying he “defected to freedom.” The man was found on a rubber boat when he was about to set foot on Taiwan at the estuary of Houkeng River (後坑溪) near Taiping Borough (太平) in New Taipei City’s Linkou District (林口), authorities said. The Coast Guard Administration’s (CGA) northern branch said it received a report at 6:30am yesterday morning from the New Taipei City Fire Department about a
IN BEIJING’S FAVOR: A China Coast Guard spokesperson said that the Chinese maritime police would continue to carry out law enforcement activities in waters it claims The Philippines withdrew its coast guard vessel from a South China Sea shoal that has recently been at the center of tensions with Beijing. BRP Teresa Magbanua “was compelled to return to port” from Sabina Shoal (Xianbin Shoal, 仙濱暗沙) due to bad weather, depleted supplies and the need to evacuate personnel requiring medical care, the Philippine Coast Guard (PCG) spokesman Jay Tarriela said yesterday in a post on X. The Philippine vessel “will be in tiptop shape to resume her mission” after it has been resupplied and repaired, Philippine Executive Secretary Lucas Bersamin, who heads the nation’s maritime council, said
REGIONAL STABILITY: Taipei thanked the Biden administration for authorizing its 16th sale of military goods and services to uphold Taiwan’s defense and safety The US Department of State has approved the sale of US$228 million of military goods and services to Taiwan, the US Department of Defense said on Monday. The state department “made a determination approving a possible Foreign Military Sale” to the Taipei Economic and Cultural Representative Office in the US for “return, repair and reshipment of spare parts and related equipment,” the defense department’s Defense Security Cooperation Agency said in a news release. Taiwan had requested the purchase of items and services which include the “return, repair and reshipment of classified and unclassified spare parts for aircraft and related equipment; US Government
More than 500 people on Saturday marched in New York in support of Taiwan’s entry to the UN, significantly more people than previous years. The march, coinciding with the ongoing 79th session of the UN General Assembly, comes close on the heels of growing international discourse regarding the meaning of UN Resolution 2758. Resolution 2758, adopted by the UN General Assembly in 1971, recognizes the People’s Republic of China (PRC) as the “only lawful representative of China.” It resulted in the Republic of China (ROC) losing its seat at the UN to the PRC. Taiwan has since been excluded from