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Fixed Income Managers Look for Fed to Feed U.S. Growth

By Hal M. Bundrick

NEW YORK (MainStreet) ¿ In spite of the damage that rising interest rates could have on their portfolio values, institutional fixed-income money managers are reasonably optimistic about the U.S. economy, as well as global affairs. But they still want the U.S. Federal Reserve to pamper monetary policy. A strong majority of professional investors believes that easy monetary policy is either important, or critical, to sustaining positive trends, according to the Fitch Ratings Fixed-Income Forum survey of money managers.

More than half (57%) look for U.S. GDP growth above 2% over the coming year, compared to 40% of respondents providing a similar forecast earlier in the year. Notably, just 17% expected a 2% economic expansion in the July 2012 survey. That rate still lags the 3% average growth for the U.S. economy over the past 50 years. In addition, a strong majority (73%) believe the threat of inflation remains minimal.

The money managers are particularly upbeat about the European economy, expressing the most optimism in two years. Fewer money runners look for a recession in the eurozone, instead anticipating growth of at least 1%-2%.

Professional fixed income investors are also more confident in the American housing market. According to the survey, a majority now see home prices growing above 5% this year and 43% believe housing has added at least 0.5% to U.S. GDP growth.

Obamacare remains a wildcard. Opinions were divided on the potential market risk posed by the Affordable Care Act, with no clear-cut consensus on the ACA's economic impact.

Few institutional investors now see sovereign issues as a high risk to the credit markets (versus 82% in July 2012), and nearly half of survey participants saw stability in the eurozone as sustainable over the coming year.

The survey also revealed strong agreement that bank lending conditions will remain favorable, with most investors believing that loan standards will continue to loosen over the coming year.

--Written by Hal M. Bundrick for MainStreet

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