Goldman Sachs, Bank of America Say Fed to Hold Rate

“They’re not even forecasting sustained improvement in the labor market, so my interpretation of that is that they expect to do more. There’s no reason to do it now that they’ve already put something else in place.” Ward McCarthy, chief financial economist at Jefferies & Co.

Goldman Sachs Group Inc. and Bank of America Corp. say a weaker-than-forecast June jobs gain in the U.S. will lead the Federal Reserve to keep its benchmark interest rate at almost zero until the middle of 2015.

The Fed, which has pledged to hold the rate low through at least late 2014, will amend its so-called forward guidance before deciding on a new round of bond purchases, according to the companies. Goldman Sachs and Bank of America are two of the 21 primary dealers that trade directly with the central bank.

“The ‘late 2014’ formulation has now ‘aged’ by six months since it was first adopted, but the economy still looks no better,” Jan Hatzius, the chief economist at Goldman Sachs in New York, wrote in a report yesterday. The central bank may announce the change as soon as its next policy meeting July 31 to Aug. 1, Hatzius wrote.

Chairman Ben S. Bernanke faces jobs growth that slowed in the second quarter to one-third the pace of the prior three months. The gain in June was 80,000, the Labor Department reported July 6, versus 100,000 projected by a Bloomberg News survey of economists. Bernanke hasn’t ruled out more bond purchases, and he said June 20 that more easing probably will be needed unless there is “sustained improvement in the labor market.”


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