Federal Reserve monetary policy will keep interest rates unchanged as quantitative easing continues, and regulatory policy out of Washington will continue to pose risks for investors in 2011, said Keefe, Bruyette & Woods analysts at a Dec. 9 outlook breakfast in New York.
Although much of the heavy lifting has already been done in creating a regulatory framework for financial services, the implementation of the rules plus challenges from a new Republican majority will lead to uncertainty about exactly what shape the revised regulatory landscape will take, KBW Washington analyst Brian Gardner said in his research outlook for 2011, "Buy the Regulators; Sell Congress."
"What's one person's technical correction is another's significant change," Gardner said at the breakfast, noting that Republicans will push to change elements of the Dodd-Frank bill but won't 
see much success. "There has been a sigh of relief that Dodd-Frank is in place, but there is still political risk. The Republicans will comb through Dodd-Frank, but it's not going away. It's really about the regulators in 2011; it's a year of implementation."
Meanwhile, the federal funds rate will remain unchanged through 2011 at the zero percent to 0.25% target established by the Federal Reserve, and the Fed could very well expand past its second round of quantitative easing in 2010 to new QE plans in 2011, according to the analysts on KBW's North America Equity Research team. Based in New York, KBW is an investment bank that specializes exclusively in the financial services sector.
"We believe that short-term interest rates will remain low during 2011 and through most of 2012," the KBW analysts wrote in a financial services outlook. "In our view, the ongoing labor market weakness coupled with weakening consumer spending are main reasons the Federal Reserve will hold rates at a low level."
