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Analysts expect interest rates will remain low for a while By Sue Kirchhoff, USA TODAY WASHINGTON — The Federal Reserve appears willing to keep interest rates low as long as needed to juice an economy that continues to show weakness. Wednesday's quarter-point cut, which pushed short-term rates to a 45-year low of 1%, was a clear signal the Fed now anticipates a slower pickup, which could increase what it has called the 'minor' odds of widespread, crippling deflation. But the Fed move was not clear enough, or bold enough, for the bond markets, which had been hoping for a bigger, half-point cut. Yields on the benchmark 10-year Treasury note rose to a six-week high of 3.54% Thursday as the market was rocked a second day. Still, analysts expect interest rates to remain muted for some time. A midyear economic survey by The Bond Market Association shows respondents expect the Fed to hold steady until next summer, while rates on everything from two-year Treasury notes to municipal bonds rise gradually in the next few quarters. 'Even though we're looking for a significant increase in capital investment expenditures on the part of corporations, there will probably not be a big enough push to borrow to the extent it would put pressure on rates,' says Michael Decker, senior vice president of the association. Fred Dickson, chief market strategist at D.A. Davidson & Co., doesn't expect the Fed to start raising rates until late 2004 or early 2005. Not only will the Fed want to see sustained improvement, it will want to keep policy stable as the 2004 presidential election nears. 'The Fed doesn't get excited about raising rates to slow economic activity until (growth is) 4% to 4.5% on an annualized rate. I can't see them starting to do anything until unemployment starts coming down for an extended period of time,' he says. Data out Thursday did little to clarify the economic picture. The Commerce Department said the economy grew at only a 1.4% annual rate in the fir
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