"They're going to keep that phrase, 'considerable period,' for some time," said Edward McKelvey, a senior US economist at Goldman, Sachs & Co in New York. "I'm more convinced of that now because of the payroll report," which showed job growth increased by only 1,000 in December.
The economy has shed 2.32 million jobs since President Bush took office in January 2001, including 1.07 million since the current economic expansion began in November 2001. Unless the economy makes up the gap by Election Day, Bush would become the first president since Herbert Hoover to end a term with fewer jobs than when he started.
Twenty-one of 23 economists at the so-called primary US government securities dealers, or firms that trade with the central bank's New York branch, predict the phrase will stay. A month ago, before the Fed's December meeting and the payroll report, a majority of the then 22 dealers polled expected the phrase to be dropped.
Fed policy makers have kept their target for overnight loans between banks, or federal funds, at a 45-year low of 1% since June in a bid to spur company spending and prevent inflation from slowing too much. Slow inflation can hinder a company's ability to raise prices, keeping a lid on profit margins and deterring additional hiring.
"The Fed has to be confident the unemployment rate is on a downward trajectory and inflation is at least stable if not a little higher before raising rates," said Michael Moran, chief economist at Daiwa Securities America Inc in New York.
Moran expects the Fed to remove the phrase in June and to raise rates by half a percentage point this year, starting in November. The failure to create jobs is a criticism levelled at Bush by Democratic presidential candidates such as John Kerry and Howard Dean. After the government on January 9 said the economy added just 1,000 jobs in December, Kerry said Bush "went on the radio to insult people's intelligence to suggest a great recovery is under way".
The economy will expand at an average rate of 4.4% this year, the fastest since 1999, according to the median forecast of 57 economists surveyed by Bloomberg between December 23 and January 6.
Goldman's McKelvey predicts the Fed will wait until mid-2005 to raise its benchmark interest rate. By the end of next year, the fed funds rate will be 2.5%, he said.
Only Conrad DeQuadros at Bear, Stearns & Co and Ian Morris at HSBC Securities USA Inc said the Fed will remove the phrase. "This meeting is an opportunity to drop the 'considerable period' comment,' said DeQuadros, who is one of two economists who predicts the Fed will lift its target in May. He said the economy will add "200,000 or so" jobs this month.