Predictions 2011: Steve Liesman On The Economy

1. Interest rates will stay on hold for the entire year.

The only possible change is that the Fed doesn't purchase all of the assets it has promised under QE2 because of an improving economy. QE2 will have a modest positive effect on stocks and possibly on rates.

2. The Fed will be Late getting out, risking some inflation

I worry that two years from now, the Fed will have to step hard on the brakes and risk a recession. I believe it will choose recession over inflation. If you think the political backlash against the Fed is bad now, just wait for that.

3. The Euro will hold, but just barely.

Germans will have to eat a lot of chorizo, cozido à portuguesa and potatoes.

4. TARP will come close to paying for itself.

Given the major, unquantifiable benefit that it had of keeping the financial system from crashing, you could argue it has already paid for itself many times over. The resultshave already proved most of the naysayers totally wrong. Still waiting for them to admit it.

5. Europe could still blow it all.

My biggest fear for the economy is that Europe doesn't get its act together and drags down the recovery again.

My second biggest fear is that investors no longer believe that the United States will eventually get its fiscal act together and push up high interest rates, forcing quicker fiscal adjustment than might be prudent for the nascent recovery.