Fed may stick to low-rate scenario: Pimco

Published on Wed, Jun 24, 2009 at 09:28 |  Source : CNBC-TV18

Updated at Wed, Jun 24, 2009 at 20:07  

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Paul McCulley, Pimco

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The Federal Open Market Committee's (FOMC) latest policy statement will be presented today after the two-day meet in the US.

Paul McCulley of Pimco said he expected the US Federal Reserve to adopt a 'dovish' view. "The Fed is likely to point out a very low rate scenario. Fed rates may stay low for an extended period," he said.
Inflation in the US would keep falling for one-two years and that the pace of economy contraction had come down, McCulley said. "However, real recovery led by job creation will take time."

"Recovery will be better than L-shaped one. It is likely to be led by end of gross domestic product (GDP) contraction," he added.
Also read: Fed to remove policy accommodation to avoid inflation ahead

Here is a verbatim transcript of the exclusive interview with Paul McCulley on CNBC-TV18. Also watch the accompanying video.
Q: What do you expect to hear from the Fed? There has been such a lot talk about interest rates heading up in the foreseeable future. Do you still expect the Fed though this time to be dovish?

A: I agree they will be dovish. If there is any surprise tomorrow, they will point out that they really mean it when they say they will stay down for an exceptionally low Fed funds rate for a extended period, and they will strengthen that by saying they will stay down for as long as the outlook for inflation could be uncomfortably low. So I would not be surprised, in fact I would encourage them to add the condition of inflation for the extended period, because inflation will be very low and falling for the next year or two.
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