Fed to Hike Rates to 7% by Mid-2011: Strategist

Federal Reserve policymakers kicked off the two-day meeting to determine the U.S. interest rate policy. John Lekas, CEO and portfolio manager of Leader Capital, and Michelle Girard, senior economist at RBS, weighed in on what investors should expect from this week’s decision.

“We’re most focused on the Treasury-buying program,” Girard told CNBC.

“There’s not going to be any meaningful expansion of the program. The Fed is moving toward winding down the balance sheet, not stepping up. So if they say anything, it will be just a signal that the program is in the process of being wound down.”

Girard said she doesn’t expect the Fed to start raising interest rates until the middle of 2010.

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“We think we’ll be at 5 percent by the end of 2010 and continuing higher into 2011,” she said. “The Fed is going to be very cautious to make sure the economy is on solid footing before they hike.”

In the meantime, Lekas said the Fed would have already begun to raise interest rates if it weren’t for Bernanke’s tenuous position re being reappointed.

“We do think they’ll signal that they’d like to raise and probably begin so toward the end of this year,” said Lekas.

“We think the Fed will take [interest rates] to almost 7 percent by the second quarter of 2011. That’s based on weak GDP and continuing deterioration of the dollar, which is inflationary.”

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No immediate information was available for Girard or Lekas.

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