Vanguard's Volpert sees slow U.S. recovery

Vanguard Group's Head of Taxable Bond Group Ken Volpert answers questions during a Reuters Investment Outlook Summit in New York December 8, 2009.

NEW YORK (Reuters) - The U.S. economic recovery is shaping up to be slow-moving, with real jobs growth not emerging for another five years, a top bond fund manager with Vanguard Group said on Tuesday.

Consumer spending is likely to remain sluggish -- despite an encouraging government payrolls report last week -- which will prevent U.S. gross domestic product from expanding at its long-run average of 3.5 percent to 4.0 percent, Kenneth Volpert, head of Vanguard's taxable bond group, said at the Reuters Investment Outlook Summit in New York.

A slow recovery will likely prevent U.S. companies from adding workers over the next several years, keeping unemployment at historic highs, he said.

"We see fairly weak real final demand, which we think is going to lead to a jobless recovery for a prolonged period time," Volpert said.

Vanguard is one of the biggest U.S. fund companies, overseeing $1.3 trillion in assets. Volpert's fixed income group manages $250 billion.

Based on his outlook for a slow recovery, Volpert said the Federal Reserve will be in no hurry to step away from its ultra-loose monetary policy.

He expects the U.S. central bank will probably keep key short-term interest rates near zero percent in 2010 due to a persistently weak labor market that will drag on personal consumption.

Once the Fed is ready to raise rates, however, Volpert cautioned against assuming that Fed Chairman Ben Bernanke will dust off the tactics used by his predecessor, Alan Greenspan.

Critics have blamed Greenspan's gradualist approach as a key reason for the U.S. housing bubble.

"I don't think Bernanke will follow Greenspan's playbook. He has his own playbook," Volpert said.

For now, the Fed has been working on ways to end its liquidity measures in a bid to stem the fallout from last year's credit crisis.

The Fed has planned to buy $1.25 trillion in mortgage-backed securities and $175 billion in debt issued by mortgage agencies Fannie Mae FNM.N, Freddie Mac FRE.N and the Federal Home Loan Bank System in an effort to hold down mortgage rates and stabilize the battered housing market.

When the Fed stops buying mortgage-backed securities in the first quarter of 2010, Volpert predicted their yield premiums over Treasuries could rise 20 to 40 basis points. Such a rise could add anywhere from 25 to 50 basis points to U.S. 30-year mortgage rates next year, he said.

Even with the dramatic rally on Wall Street since March, the appetite for bonds has been robust this year. Investors have poured $73 billion into Vanguard's bond funds as of the end of November, according to the Malvern, Pennsylvania-based firm.

(For summit blog: blogs.reuters.com/summits/)