Survey Expects One More Interest Rate Hike; Steady Rates in 2007

A survey of forecasters by the National Association of Business Economics sees only one more interest rate hike through 2007.

A survey report by the National Association of Business Economics (NABE) predicts that 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. The survey, which was performed from April 7 to 25, was released Monday.

In the survey, a panel of 50 forecasters raised its consensus outlook for second-quarter economic growth to a 3.5 percent annual rate from 3.4 percent forecast three months ago. The forecasters also predicted the gross national productwould increase by 3.5 percent, up from the 3.3 percent forecast in February, before cooling to 3 percent growth in 2007.

The report says the Federal Reserve will see the target fed funds rate at 5 percent before the end of the second quarter, represtenting the peak of a tightening cycle, which began in June 2004.

"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," the NABE said. "Instead the panel looks for a steady 5 funds rate throughout all of next year."

The 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.

The NABE also said it expects job growth will remain at about 2.1 million jobs created in 2006 and 1.8 million added next year.

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