NEW YORK The U.S. economy will grow modestly this year, dogged by fiscal policy battles in the first half yet supported by an improving housing market, a Reuters poll showed on Wednesday.
Most economists polled over the last week expect the Federal Reserve's ultra-loose monetary policy, including the latest open-ended bond-buying program, to remain in place well into next year despite the general improvement.
U.S. lawmakers managed to avoid automatic sweeping tax hikes and spending cuts at the start of the year - the fiscal cliff - which were hanging over the outlook last month.
But there are more budget battles ahead, including the imminent need to raise the government's borrowing limit, and wrangling over deep spending cuts that are scheduled to take place in March.
So economists in the poll held their forecasts steady, still calling for a 1.5 percent annualized rate of growth in the first quarter, 2 percent in the second, followed by 2.5 percent and 2.7 percent near the end of the year.
This translates as a 2.0 percent increase on growth for 2013 as a whole versus a predicted 2.3 percent last year.
Most agree that major business spending and hiring decisions are on ice until the big budget fights are over. That means that the economy will remain in low gear.
"There's not a lot of incentive to get ahead of these decisions, so business leaders are pretty much keeping things close to the vest," said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.
With the euro zone debt crisis tamed for now but still not solved, economists say that the biggest risks to the world's largest economy are political.
"(They) center on mistakes by policymakers in Washington and Europe," said John Lonski, chief economist at Moody's Analytics Capital Markets Research Group.
A BETTER SECOND HALF
The second half of the year is expected to be stronger, as the housing market, long the Achilles' heel of the U.S. economy, recovers further.
Six years after the start of a historic and dramatic collapse, housing is expected to have contributed to economic growth in 2012 for the first time since 2005.
House prices are seen rising 5.1 percent in the first quarter compared with the same quarter a year ago, up from October's forecasts of 3.9 percent. For the year as a whole, prices are anticipated to climb 4.2 percent, up from earlier forecasts of 3.1 percent.
The jobless rate is expected to average 7.7 percent this year and 7.2 percent next year. But that is a long way from the Fed's 6.5 percent target to end its $85 billion a month bond-buying program.
Almost all of the economists polled expected the Federal Reserve would continue its current round of bond purchases until at least the end of 2013. Twenty-six out of 41 expected the program would end sometime in 2014 or later.
They expect the Fed to conduct $713 billion in total of purchases under this third round of money printing, or QE3, less than three-quarters of the $1 trillion total consensus prediction from last month's poll.
Inflation is expected to remain below 2 percent until the second half of the year.
(The story corrects John Lonski's title in tenth paragraph)
(Polling by Namrata Anchan and Sarmista Sen. Editing by Jeremy Gaunt.)