The economy will be ready for the Federal Reserve to start cutting back on its bond-buying program later this year, Mark Zandi, the chief economist of Moody’s Analytics, told “Nightly Business Report.”
“I think by late this year, the fiscal headwinds, the tax increases and spending cuts will begin to fade,” he said. “That will let the better private economy shine through. That will be more job growth and lower unemployment.”
On Wednesday, Fed Chairman Ben Bernanke said if the economy continues to improve, the central bank could start scaling back on its massive stimulus program toward the end of 2013, and wrap up in 2014.
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“If the incoming data support the view that the economy is able to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of purchases,” the Fed chief said at a press conference after the conclusion of the Federal Reserve’s two-day meeting. “However, any need to consider applying the brakes by raising short-term rates is still far in the future.”
Zandi said higher interest rates are on the way, but that isn’t necessarily a bad thing.
“My sense is by the end of the year, certainly by this time next year, interest rates will be higher and they’re going to move steadily higher over the course of the next several years,” he said.
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While that may be hard for the economy to digest, Zandi believes the recovery will remain intact if interest rates are rising because the economy is improving.
“The better job market will trump the higher interest rates and we’ll be just fine,” he said.