The latest survey from the Securities Industry and Financial Markets Association’s Economic Advisory Roundtable finds that most market players don’t expect the U.S. central bank to alter interest rates just yet.

The group released its outlook for 2009 and 2010, forecasting that the U.S. Federal Open Market Committee will not change its current 0.0% to 0.25% target federal funds rate at this week’s rate setting.

Moreover, when asked whether the expansion of the Fed’s balance sheet poses an inflationary risk, most commentators believed inflation to be “a potential risk, but also acknowledged major counterbalancing trends such as significant economic slack and financial deleveraging,” it reported.

It also noted that many are also confident that the Fed will be able to move from very loose monetary policy in a timely way, and few market watchers seem worried about a relapse caused by premature removal of accommodative policy. The majority also believes that the concerns about near-term inflation risks are misplaced.

“The general consensus of the Roundtable is that the U.S. economy will turn positive in the third quarter, although remain at a subpar pace until next spring,” said Kyle Brandon, managing director of research for SIFMA. “The U.S. economy remains afloat, although battered, with the passing of the financial market meltdown and the credit market freeze. This cautiously optimistic outlook is a result of the aggressive and unconventional central bank actions and the fiscal stimulus, which have somewhat alleviated the continuing housing sector weakness, tight credit markets, and widespread economic contraction.”

The median forecast calls for GDP to fall 2.7% in 2009 on a year-over-year basis. Respondents expect GDP to fall 2.0% in the second quarter on an annualized basis before recovering and growing at 0.8% and 1.9% annualized, respectively, in the third and fourth quarters. The economy’s GDP is forecast to grow 2.1% on a year-over-year basis in 2010, but this growth is not expected to be rapid enough to prevent unemployment from rising still higher, it added.

IE