Economists in the latest Wall Street Journal survey, on average, expect the Federal Reserve to raise interest rates around September 2010, a politically sensitive time considering midterm elections will be right around the corner and unemployment is forecast to still be over 9.5%.

The 52 surveyed economists—not all of whom answer every question—on average expect the unemployment rate to rise to 10.3% by the end of this year from its current 10.2%, and they expect it to stay above 9.5% through 2010. The respondents expect job growth to return over the next 12 months, but the forecast calls for an average of about 50,000 jobs to be added per month over that period. The economy needs to add about 100,000 jobs a month just to keep up with new entrants to the labor force.

"The small-business sector is still under pressure, and larger companies are still focused on bolstering current results rather than preparing for the future," said Lou Crandall at Wrightson ICAP. Productivity gains and cost cuts have allowed companies to boost their bottom line without adding staff.

The economists expect gross domestic product to expand around 3% at a seasonally adjusted annual rate through 2010, slightly slower than the 3.5% recorded in the third quarter. The forecast represents solid growth but remains at a level too low to add the number of jobs needed to make up for the eight million cuts recorded so far in this recession. The last time the unemployment rate topped 10%—in the 1980s—the following six quarters posted average growth of more than 7% but still only managed to bring the jobless rate down by about three percentage points.

Despite the challenges, confidence is running high in the Fed to manage the economy. Thirty of 50 economists who answered the question said that the central bank will raise interest rates at the right time, while 18 said the Fed will be too slow. That contrasts with widespread criticism of the Fed's timing in the past. In the March 2008 survey, 80% of respondents said the central bank was too slow to raise rates in 2003, and Fed Chairman Ben Bernanke has been accused of being slow to cut rates at the start of the financial crisis.