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2006 & 2007 Economic Forecast

 
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PostPosted: Sun May 07, 2006 9:54 pm    Post subject: 2006 & 2007 Economic Forecast Reply with quote

Economy to slow, rate hikes end in 2006: survey
Mon May 8, 2006 12:13 AM ET

WASHINGTON (Reuters) - The Federal Reserve will raise interest rates once more and leave them steady at 5 percent through 2007 as economic growth slows and inflation remains moderate, according to a survey of economists released on Monday.
A panel of 50 forecasters surveyed by the National Association of Business Economics bumped up its consensus outlook for second-quarter economic growth to a 3.5 percent annual rate from 3.4 percent forecast three months ago.

For 2006 as a whole, gross domestic product was expected to increase by 3.5 percent, up from the 3.3 percent forecast in February, before cooling to 3.0 percent growth in 2007.

"The NABE panel sees the economy heading for a period of slightly below-trend growth with moderate inflation for the rest of this year and next," said Stuart Hoffman, NABE president and chief economist at PNC Financial Services Group.

The NABE survey was taken April 7 to April 25.

The panel believes policy-makers at the Fed will raise rates just one more time, taking the target fed funds rate to 5.0 percent before the end of the second quarter. That will represent the peak of this tightening cycle, which began in June 2004, the group said.

"The full panel no longer expects the Fed to gradually lower the fed funds rate back to 4.5 percent by the end of (2007), the panel's estimate of the neutral rate," it said. "Instead the panel looks for a steady 5.00 funds rate throughout all of next year."

The central bank has raised overnight borrowing costs 15 straight times since June 2004 to 4.75 percent in a bid to return rates to neutral levels and head off inflation concerns. Policy-makers are expected to raise rates again by a quarter of a percentage point when they meet on May 10.

NABE said high and rising energy costs remain the biggest downside risk to economic growth and the biggest upside risk to inflation.

The panel expects the Consumer Price Index, excluding volatile food and energy prices, to increase 2.3 percent in 2006 and 2.4 percent in 2004, unchanged from the February forecast.

Crude oil is expected to be trading near $63 a barrel at the end of the year, up from $59 forecast in February. But the panel believes the economy will withstand the hits of higher oil and gasoline prices.

Consumer spending was forecast to rise 3.3 percent this year and 3.0 percent in 2007, a slight slowdown from the 3.5 percent gain in 2005.

Job growth will remain solid, with about 2.1 million jobs created in 2006 and 1.8 million added next year, NABE said. That is just strong enough to maintain the unemployment rate at 4.7 percent this year before it rises to average 4.9 percent in 2007, the panel forecast.
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