Bank of America Merrill Lynch economist Ethan Harris said there's a "decent chance" the Fed will extend its quantitative easing program, after it finishes the latest round of Treasury purchases.
Harris made the comment Tuesday morning at a press briefing for his firm's 2011 outlook. The Fed announced its current quantitative easing (QE) program in November. It is expected to complete its purchases of $600 billion in Treasury securities by the end of the first half of next year.
Harris said the Fed's decision to extend or even cut short its current program will depend on the unemployment rate, currently at 9.8 percent.
The Fed today showed no signs of letting up on its current QE plan in the statement it released after its meeting Tuesday. Nor did it address the sharp move up in interest rates since it launched the program in November. The Fed purchases were expected to push interest rates lower. The 10-year yield Tuesday jumped to a high of 3.48 percent in afternoon trading.
Harris said he expects GDP of 2.8 percent for 2011, and he expects fiscal stimulus to contribute a half percent to that number.
"I think the dark cloud in this otherwise sunny outlook is we have no plan for the budget deficit," he said.
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