WASHINGTON, June 26 /PRNewswire/ -- The Bond Market Association's Economic
Advisory Committee predicts that the U.S. economy will pick up speed in the
second half of the year from currently low levels and that the Federal Open
Market Committee will move to ease interest rates again this year, beginning
with an anticipated cut Wednesday.
"The Committee believes that the Fed has been very responsive and has
correctly pursued aggressive easing so far this year, but the group is divided
as to whether this policy has been effective," the Association's economic team
says. It expects the first action to come as soon as tomorrow, but the
Committee was evenly split as to whether the action will result in a
quarter-point or a half-point cut.
The panel released its findings at a press conference in the Association's
Washington office this morning.
In other projections, the economic panel expects:
* Inflation will moderate during the rest of the year and into 2002 as
energy prices begin to recede by the end of the year;
* Unemployment will continue to rise, reaching an average rate of
5 percent in 2002 from the 4.6 percent average expected for 2001;
* New home sales are expected to drop from the current 900,000 units to
800,000 units in 2002. At the same time, existing home sales are
expected to fall to 4.8 million in 2002 from the 5.1 million home
sales projected for 2001.
* At the same time, mortgage rates will remain within a range between
7.05 percent and 6.93 percent.
* Growth in state and local government spending will slow, rising by an
average of 2.5 percent by yearend 2002, down from the 2000 growth rate
of 3.5 percent.
The Association's Economic Advisory Committee is made up of 12 economists
from leading firms active in the bond markets. Its chairman is William
Dudley, director of U.S. Economic Research, Goldman, Sachs & Co. Other
members are: Wayne Angell, Bear Stearns & Co., Inc.; Richard Berner, Morgan
Stanley Inc.; Frederick Breimyer, State Street Bank and Trust Company; Ethan
Harris, Lehman Brothers, Inc.; John Lipsky and James Glassman, J.P. Morgan
Chase & Co.; David Orr, First Union Securities; Richard Rippe, Prudential
Securities, Inc.; Neal Soss, Credit Suisse First Boston Corp.; Bruce
Steinberg, Merrill Lynch & Co., Inc.; and Brian S. Wesbury, Griffin, Kubik,
Stephens & Thompson, Inc.
The committee identified a number of reasons for the current economic
weakness, including the overvaluation of technology stocks, the capital
spending slowdown, high energy prices and excessive monetary policy tightness
in 2000. But the group was unanimous in thinking the economy would begin
picking up in 2001.
"The Committee anticipates that the forthcoming tax cuts will provide some
stimulus to the economy in the short-run by lifting consumer spending, but
there was disagreement as to the strength of that impact," the Committee
reports, with most members expecting the effect of the stimulus to be lessened
over the long-run, due to the long phase-in of the tax cut.
Most of the economic panelists expect credit conditions will continue to
deteriorate, although only to moderate levels. "The Committee cited the
investment bust in technology and deterioration in consumer creditworthiness
due to rising unemployment as underlying factors," the Association reports.
While most members of the panel expect bond issuance to remain strong, others
think it will slow in the second half of 2001.
Turning to credit quality, most of the Committee's members anticipate a
continued rise in bond default rates, especially among telecommunications and
high-yield issues.
The Bond Market Association represents securities firms and banks that
underwrite, trade and sell bonds in the international and domestic markets.
SOURCE The Bond Market Association
 back to top
Related links:
http://www.bondmarkets.com
CONTACT:
Michael Dorfsman, 212-440-9426, or Myra L.
Dandridge, 202-434-8421, both of The Bond Market Association
|
