WASHINGTON (MNI) – The following is an excerpt from the semiannual
economic forecast survey series of the Bond Dealers of America Economic
Advisory Committee published Tuesday:

The Bond Dealers of America’s Economic Advisory Committee consensus
view, according to the survey, is for the pace of economic growth to
remain modest, but to gradually pick up in 2012 and 2013. Economic
growth will approach potential over that time period, as a result of
aggressive monetary policy and improving consumer and business
confidence. The forecasts are dependent on the effectiveness of monetary
policies and the expectation of some fiscal policy retrenchment as the
focus turns to paring the deficit and debt management during the
2012-2013 forecast period. With restrained employment and output growth,
the risk of stronger than expected inflation is muted.

– The median forecast calls for GDP growth of 1.7% in 2011, 2% in
2012, and 2.7% in the first half of 2013.

– Inflation, as measured by the Consumer Price Index, is expected
to moderate from 3.1% in 2011 to 2.2% in 2012. Growth in energy and food
prices is expected to slow in 2012 along with global demand. The
consensus expectation is for inflation to remain well under control over
the next year.

– Real personal consumption expenditures are expected to rise by
2.1% in 2011 and 2012 and will increase to 3.2% in the first half of
2013. Real private investment spending is expected to grow by 8.4% in
2011 and 6.5% 2012.

– Unemployment will remain elevated relative to historic trends but
will gradually decrease over the forecast horizon. The consensus view is
that the unemployment rate will average 9% in 2011 and 2012 and decrease
to 8.8% in the first half of 2013. Average monthly job growth will be
restrained and less than that necessary to meaningfully reduce
unemployment.

Risks to the forecast

Despite the expectation of modest growth over the next two years,
substantial economic headwinds remain. By more than a 3:1 margin (77%
vs. 22%) respondents believe that downside risks dominate. The key
downside risks to the forecast cited by respondents are the European
debt crisis and housing. Other significant downside risks are the labor
market and consumer spending. Lower energy prices and a declining value
of the U.S. dollar were cited as the leading upside risks to the
forecast. Monetary policy was also cited as an important upside risk.

Monetary policy

The consensus view of the BDA Economic Advisory Committee is that
the Federal Open Market Committee will retain its accommodative monetary
policy stance with respect to the target federal funds rate. An
overwhelming 85% of respondents expect that the target federal funds
rate will not be raised until the middle of 2013 or later. The committee
places a 36% probability of a third round of quantitative easing and
concludes that, on a net basis, the Operation Twist strategy will be a
net positive to economic growth.

Fiscal policy and deficit

The median forecast expects the federal budget deficit to decline
from $1.3 trillion to a still elevated $1.1 trillion.2 A lower rate of
growth in federal spending will contribute to deficit reduction. The
median forecast projects federal spending to decline by 2% in 2011 and
2012, in part due to waning federal stimulus spending, and also deficit
reduction measures likely to be implemented by the special congressional
committee. The federal deficit will also be reduced through stronger
revenues from a gradually improving economy.

** Market News International Washington Bureau: 202-371-2121 **

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