New York, July 1 (Bloomberg) -- Economists at eight of Wall Street's big bond firms now predict the Federal Reserve will wait until next year to raise interest rates, twice as many as made that forecast a week ago. Expectations that slumping stocks may temper an economic rebound prompted economists at Dresdner Kleinwort Wasserstein Securities LLC, HSBC Securities USA Inc., Lehman Brothers Inc., Mizuho Securities USA Inc. and Nomura Securities International Inc. to join three other dealers that trade directly with the Fed in saying the central bank would leave its benchmark rate at 1.75 percent until at least January. Economists have become more pessimistic about the economy as the Standard & Poor's 500 Index has tumbled in 12 of the past 15 weeks, losing 15 percent of its value. WorldCom Inc.'s announcement it inflated profits by hiding expenses heightened concern more companies will disclose accounting irregularities, undermining consumer confidence. ``The Fed can't do anything but wait,'' said Kevin Logan, chief market economist at Dresdner Kleinwort Wasserstein Securities LLC. As recently as last week, Logan predicted the Fed would raise its target for overnight loans between banks a quarter point in September and had forecast a 75 basis-point increase by the end of the year. Lehman economist Stephen Slifer, who earlier this month said the Fed would raise rates in November, now predicts the central bank will hold fast until March. A basis point is 0.01 percentage point.

Perception Change
One week ago, economists at just three of the 22 so-called primary dealers said the central bank would wait until next year to raise the federal funds target: Citigroup Inc.'s Salomon Smith Barney, CIBC World Markets Inc. and Credit Suisse First Boston. Eleven days before that, only CIBC said so, while last month, none forecast such a scenario. ``The decline in stocks in past weeks has really changed the perception of the potential for a pick-up in business spending during the second half of the year,'' said Eric Green, a senior economist at BNP Paribas, who expects the Fed to wait until December to boost rates. ``The Fed can't raise rates and risk choking off the recovery.'' Many investors fleeing stocks sought the safety of the U.S. Treasury market, helping drive the yield on the two-year note, the most actively traded government security, down for six consecutive weeks to a five-month low of 2.81 percent on Friday.

Increase Still Seen
The majority of economists surveyed expect the U.S. central bank to enact the first rate increase since May 2000 before the end of the year. Ten of those, including Bruce Steinberg at Merrill Lynch & Co., said the Fed's first interest-rate increase would come at the Nov. 6 meeting. Last week, Steinberg predicted the Fed would act in September. ``Clearly, the unsettled market conditions are going to postpone any movement,'' Steinberg said. ``With the S&P 500 under 1000, the sign from the market is, `Don't do a thing.''' Tame inflation gives the Fed time to wait for a pickup in business spending before raising rates, economists said. Consumer prices rose 1.2 percent in the 12 months through May, down from a 3.6 percent increase in the year-earlier period. Spending on equipment and software has declined for six straight quarters. Interest-rate futures indicate traders have also pushed back expectations for a rate increase. The 1.95 percent yield on the December federal funds futures contract suggests that they see a quarter-point increase by the end of the year, bringing the central bank's target to 2 percent. Last week, fed funds contracts indicated about a 50 percent chance of a rate increase at the bank's Sept. 24 meeting. The contracts are a gauge of the average overnight rate for a particular month.

Jobs Report
In order for the Fed to raise rates, the unemployment rate will have to have peaked and begun its descent, economists said. Friday's Labor Department report will probably show the jobless rate rose to 5.9 percent in June from 5.8 percent in the previous month, according to a separate Bloomberg survey of economists. Still, that's down from 6 percent in April. ``Job creation is still somewhat sluggish, and is probably not enough to absorb all those people who have been laid off,'' said Conrad DeQuadros, a economist at Bear, Stearns & Co. ``The unemployment rate may rise further, and the Fed won't raise rates when that happens.''