Federal Reserve Chairman Ben S. Bernanke says he'll stoke the economy until the job market recovers “substantially.” That promise may force him to keep buying bonds until the final months of his term ending in January 2014, according economists in a Bloomberg survey.

Sixty-eight percent of 60 economists said the Fed chairman's third round of quantitative easing will last until late next year or beyond. Just 51 percent of them said the strategy will help boost employment, with a median estimate of 116,000 jobs over the course of next year.

“The recovery in the labor market is probably going to be more sluggish than the Fed recognizes” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York and a former Fed economist. He said policy makers have “painted themselves in a bit of a corner, waiting to see a significant improvement in the labor market.”

Bernanke said in August that new bond buying, while spurring growth and generating jobs, may erode confidence the Fed will exit smoothly from record accommodation, including the first two rounds of bond purchases totaling $2.3 trillion. Most surveyed economists believe Bernanke has gone too far with quantitative easing, with 55 percent saying policy is too easy, compared with 48 percent who said so in a Sept. 7-10 survey.

Bernanke and his colleagues on the Federal Open Market Committee will conclude a two-day meeting in Washington today and release a statement on policy, including their current plan to buy $40 billion in mortgage-backed securities each month for an indefinite period.

By not buying bonds, the Fed would increase the risk of “structural damage” to the economy as skills atrophy among workers facing long-term unemployment, Bernanke said on Aug. 31.

More than 4.8 million Americans have been out of work for six months or more, Labor Department data show. Bernanke said in the August speech in Jackson Hole, Wyoming, that the first two rounds of quantitative easing generated 2 million jobs.

The Fed started its third round of easing even as it continued Operation Twist, a program to lengthen the maturities of the assets already on its balance sheet by swapping about $45 billion a month of short-term debt and buying the same amount of longer-term Treasury securities.

That program is due to end in December. Seventy-two percent of the economists said the Fed in January will make up for the end of Operation Twist with monthly purchases of as much as $45 billion in Treasury securities in addition to the mortgage-bond buying. The central bank may wait for their Dec. 11-12 meeting before deciding what to do after Operation Twist.

Dealers that trade directly with the Fed also expect the central bank to continue buying Treasuries after Operation Twist ends, according to a separate Bloomberg survey.

“The odds are slightly tilted in favor of them adding further Treasury purchases after Twist is done,” said Michael Feroli, chief U.S. economist at New York-based JPMorgan Chase & Co. and a former researcher for the Fed Board in Washington. “I don't think we'll have seen enough improvement for them to be satisfied, and if there are fiscal headwinds coming next year they'll want to provide some extra accommodation.”

Economic output would shrink by 0.5 percent next year, and joblessness climb to about 9 percent if the so-called fiscal cliff isn't averted, according to the Congressional Budget Office. The term refers to $607 billion in U.S. federal spending cuts and tax increases scheduled to take effect in January unless Congress acts.

A slowdown in global growth may also inhibit the U.S. expansion, Bernanke has said.

The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the International Monetary Fund said this month, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender sees “alarmingly high” risks of a steeper slowdown, with a one-in-six chance of growth slipping below 2 percent.

The Standard & Poor's 500 Index rose to a 2012 high on Sept. 14, the day after the Fed announced QE3. Since then the benchmark has dropped 3.6 percent as companies including DuPont Co. and 3M Co. reported earnings that spurred concern the economy is weakening. The index is up 12 percent this year.

The yield on the 10-year Treasury note slipped 0.06 percentage point yesterday to 1.76 percent, the same level as the day before the last FOMC meeting. The yield fell to a record low 1.38 percent in July.

Peoria, Illinois-based Caterpillar Inc., the world's largest maker of construction and mining equipment, this week forecast sales growth for 2013 that would be slower than in the previous three years as the global economy loses momentum.

Rising GDP

The U.S. economy grew at a 1.3 percent pace in the second quarter, slower than a prior estimate of 1.7 percent, after increasing at a 2 percent rate in the first. Economists predict gross domestic product will rise by 1.8 percent in the third quarter, according to the median of 85 estimates in a Bloomberg survey.

By combining Treasury and mortgage-backed securities purchases and continuing QE3 for 18 months, the central bank's balance sheet could grow by $1.5 trillion or more, said Jeremy Lawson, senior U.S. economist at BNP Paribas SA in New York.

Lawson said he forecasts growth of 2.1 percent next year and 2.7 percent in 2014. Without the open-ended bond purchases, the expansion would be closer to 1.9 percent and 2.5 percent in those years, he said.

By the end of 2014, bond buying should help push down unemployment to about 7.3 percent compared with about 7.5 percent without the program, Lawson said. While helpful, QE3 is “not a panacea for the headwinds that the economy faces.”

Bernanke has repeatedly said quantitative easing isn't a cure-all. The central bank forecast in September that the jobless rate will fall slowly, with unemployment ranging from 7.6 percent to 7.9 percent at the end of next year and from 6.7 percent to 7.3 percent at the end of 2014.

The jobless rate unexpectedly fell to 7.8 percent in September, the lowest since January 2009. The economy added 114,000 workers last month after a revised 142,000 gain in August that was more than initially estimated.

“The reason that the economic recovery has been sluggish for the last three years is that there's been a lot of headwinds holding it back,” said Josh Feinman, a former Fed senior economist. He is currently the New York-based global chief economist for DB Advisors, the Deutsche Bank AG asset management unit, which oversees $220 billion. “All the nasty residue of the bubble has impeded the normal transmission mechanisms of traditional monetary policy easing.”

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Bernanke Could Be Buying Bonds Until Term Ends

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