MercoPress. South Atlantic News Agency

Low interest rates for some time.

Most Wall Street operators who deal directly with the Federal Reserve in the bonds market forecast that United States interest rates will remain low for the next twelve, eighteen months, says Reuters.

According to a poll among the 22 primary bond operators 17 said that the Fed won't be raising interest rates until mid 2004 or 2005, given the sluggish US labour market and poor employment prospects.

Last Friday the US Department of Labour surprised analysts when it revealed that in August and for the seventh month running, US corporations cut jobs totalling 600,000 so far this year. This contrasts widely with the recent recovery signals from the world's main economies.

However the Fed made it a point last week to ensure financial markets that even with strong recovery prospects, interest rates will remain low, the lowest in 45 years.

Actually the Fed seems more concerned about a possible deflation of prices that could frustrate a rebound of the economy. With annualized inflation at 1%, and slimming, the Fed feels that prospects of lower prices could affect consumer spending and business investment.

"Payrolls of major corporations last August gives us an idea of the bind: an acceleration of economic activity with growing loss of jobs", indicated Anthony Karydakis from Banc One Capital Markets.

Of the 22 operators polled three forecasted the Fed would cut the basic rate once again, but the rest coincided that this coming September 16 the Federal Open Market Committee will decide to leave the federal funds rate at its present level of 1%.

Meanwhile in Europe this last week the European Central Bank decided to keep interest rates unchanged at 2%. A similar decision was taken by the Bank of England leaving UK interest rates unaltered at 3,5%.

Incoming ECB president Jean-Claude Trichet who takes over next November pointed out that "interest rates are at their lowest in half a century". Latest economic data from the Euro-zone suggests that a rebound may be in the making with manufacturing figures up and the best business activity performance since mid 2002. But as with United States the high level of unemployment in many Euro-zone nations could undermine the situation.

In Britain the decision to leave rates unchanged was also praised arguing that business needs "a breathing space to take advantage of the improving economic outlook and to rebuild confidence".