WASHINGTON — A group of economists who work for major U.S. banks predicted Tuesday that the economic recession would end in the third quarter.

Though it forecast the return of economic growth, however, the economic advisory committee of the American Bankers Association said problems would persist. For instance, unemployment is likely to peak at 10% and remain high through 2010, it said.

A soaring budget deficit is also expected to hamper the recovery, the group said, and the Federal Reserve Board faces a "very important challenge" over the next three years as it unwinds its lending programs and shrinks its balance sheet.

The economists said the recovery would occur, in part, thanks to the government's efforts to fight the financial crisis.

"Funding markets have stopped seizing up," said Bruce Kasman, the chief economist at JPMorgan Chase & Co. and the committee's chairman.

To quell last fall's financial panic, he said, the Fed undertook interest rate cuts and established borrowing facilities.

"I think also the administration's stress test and the way that it has worked, which was both showing how banks can make it through this difficult environment and also providing an environment which actually opened the door for some capital raising, has also been important," Kasman added.

He said market conditions had improved greatly since the committee last met in January. The consensus behind its members' forecast that the recession would end in the third quarter was unusually strong, he said.

The committee predicted that mortgage rates would remain at or below 5.5% for the next year and that the Fed would leave rates unchanged at this month's meeting of its Federal Open Market Committee.

Kasman said the group of 13 economists had discussed the regulatory restructuring proposals put forth by members of Congress and the Obama administration but had not factored them in to its forecast.

"We're still in the early stages of understanding where the regulatory process is going," he said. "That's as much a message that the process is beginning here, it's not ending. How that actually gets implemented is going to be quite uncertain here for a while."

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