Fed on Hold for all of 2007

A new survey of economists shows that the Fed will stay on hold for much of the year. The National Association for Business Economics finds that:

1. Growth in gross domestic product is now expected to average 3.1% over the four quarters of 2007.
2. Headline consumer-price inflation will decline to less than 2.0% in 2007, largely as a result of lower oil prices. This would be the lowest inflation rate in five years.
3. The “core” inflation rate, which excludes food and energy prices, is expected to hold steady at 2.3%.
4. The nation’s unemployment rate should average 4.7% this year, only a tad higher than the 4.6% rate in January.

I’m not so sure growth will be that strong. The fourth-quarter GDP will be revised on Wednesday, and everyone expects a major downward revision. The only question now is how bad will it be. I’m expecting around 2% growth. The original report pegged GDP growth at 3.5%. This could mean that the economy experienced three straight quarters of below-trend growth. Unless things change, I expect the Fed to cut interest rates sometime this year.

Posted by on February 26th, 2007 at 10:57 am


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