Oct. 31 (Bloomberg) -- Wall Street's biggest bond-trading firms say Ben Bernanke will be as zealous in fighting inflation as Alan Greenspan when he takes over as chairman of the Federal Reserve on Feb. 1.
Fed policy makers will raise the bank's overnight lending rate at least 0.75 percentage point to 4.5 percent by mid-2006, said 17 of the 22 primary dealers of U.S. government securities. In August, only 12 said the rate would reach that level, according to a Bloomberg survey.
Banc of America Securities LLC, Citigroup Global Markets Inc., Lehman Brothers Inc. and Merrill Lynch & Co. this month raised their estimates for the so-called federal funds rate after the biggest jump in consumer prices in 25 years. Higher rates may mean a fourth year of bond returns below 4 percent and increased consumer interest payments.
``Bernanke's nomination does not change our outlook,'' said Lewis Alexander, chief economist at Citigroup in New York. ``The Fed has been hardening its rhetoric in response to emerging inflation risks. They are not ready to pause.''
Citigroup forecasts a 4.5 percent federal funds rate by June, an increase from its 4 percent estimate made in August. The firm expects the rate ultimately to reach 5 percent next year.
Fed policy makers will raise the bank's overnight lending rate at least 0.75 percentage point to 4.5 percent by mid-2006, said 17 of the 22 primary dealers of U.S. government securities. In August, only 12 said the rate would reach that level, according to a Bloomberg survey.
Banc of America Securities LLC, Citigroup Global Markets Inc., Lehman Brothers Inc. and Merrill Lynch & Co. this month raised their estimates for the so-called federal funds rate after the biggest jump in consumer prices in 25 years. Higher rates may mean a fourth year of bond returns below 4 percent and increased consumer interest payments.
``Bernanke's nomination does not change our outlook,'' said Lewis Alexander, chief economist at Citigroup in New York. ``The Fed has been hardening its rhetoric in response to emerging inflation risks. They are not ready to pause.''
Citigroup forecasts a 4.5 percent federal funds rate by June, an increase from its 4 percent estimate made in August. The firm expects the rate ultimately to reach 5 percent next year.
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