ZEW Financial Market Survey: Analysts Predict a US Base Interest Rate of 5.25 Per Cent

The somewhat surprising decision of the US Central Bank to reduce the base interest rate from 6.5 to 6 per cent on 3 January this year shall have further impacts until the end of the year. German financial analysts expect that the US interest rate will fall to a level of 5.25 per cent by the end of 2001.

This is the result of a survey conducted by the Centre for European Economic Research (ZEW), Mannheim, as part of the ZEW Financial Market Survey, amongst 321 financial analysts and institutional investors. An overwhelming majority of those surveyed, 80 per cent, believe that the North American economy will undergo a "soft landing", with accompanying economic growth between 2 and 4 per cent. Only 18 per cent of the analysts perceive a risk that growth will be lower.

Before the US decision to lower the base interest rate, participants had expected to see a base interest rate of 5.5 per cent at the end of the year. Following the decision, however, they expected a rate of 5.25 per cent. This is the case despite the fact that the US Central Bank had reduced the base interest rate by half a percentage point. The financial markets had actually expected to see a slight increase in the interest rate. Following the decision of the US Central Bank, a larger proportion of financial experts expected to see a "soft landing" in the US economy. They evidently trust Alan Greenspan to protect the US business cycle from decline.

Contact

Dr. Felix Hüfner, E-Mail: huefner@zew.de