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May 6 (Bloomberg) -- The phones started ringing about the time JPMorgan Chase & Co. economists Bruce Kasman and Michael Feroli moved into Bear Stearns’ former Manhattan headquarters in 2008.
“I wish I’d kept a log” of how many people “were just freaking out, calling us nonstop” with questions about the next wave of inflation, said Feroli, the chief U.S. economist. Now the calls have “dried up to a trickle,” he said, even though the Federal Reserve’s balance sheet is close to a record $2.34 trillion and the central bank has left its benchmark interest rate near zero since December 2008.
High unemployment and low inflation -- a combination unprecedented since at least World War II -- will keep Fed Chairman Ben S. Bernanke from raising rates until the second quarter of 2011, Kasman and Feroli say. Their prediction is far later than the November increase forecast by 47 economists in an April 1-8 Bloomberg survey. With the jobless rate above 9 percent since May 2009, workers’ ability to bargain for higher wages has been sapped, along with consumer demand that would allow companies to raise prices.
“The inflation process is going to move slowly,” said Kasman, chief economist and a managing director at JPMorgan Chase, which purchased the failing Bear Stearns two years ago. “The job is to reflate the economy in an environment where there are powerful disinflationary forces. You need a reasonably long period of growth for that.”
The European debt crisis could quickly spread to US banks, which are heavily exposed to Europe, banking analyst Dick Bove told CNBC.com. Bove, of Rochdale Securities, released research showing the massive exposure US banks such as JPMorgan Chase, Morgan Stanley and Citigroup have to European debt.