Washington, DC, October 10, 2005---Top forecasters cut their outlook for U.S. growth and ramped up inflation expectations for the second half of 2005, but said the impact of hurricanes Katrina and Rita should prove short-lived, a survey released on Monday showed.
The Blue Chip Economic Indicators newsletter said "a large majority" of economists polled this month are convinced the economy is unlikely to dip much below its trend rate over the next five quarters, despite the storms' devastation.
"Even with the added burden of Hurricane Rita, most analysts believe the effects of the hurricanes will prove to be transitory -- producing a temporary slowing of economic activity offset over time by clean-up and rebuilding efforts," Blue Chip said.
The consensus forecast for third-quarter gross domestic product growth was cut to a 3.4 percent annual rate from 3.6 percent a month ago, while the fourth-quarter outlook was trimmed to 2.9 percent from 3.0 percent.
But the forecast for growth in 2005 as a whole was unchanged at 3.5 percent, and the 2006 outlook was pushed up to 3.3 percent from 3.2 percent predicted a month ago. Economists bet rebuilding from the hurricanes and resilient business and consumer spending would offset the storm impact in the longer term.
The survey was taken on October 3 and 4, more than a month after Hurricane Katrina struck the Gulf Coast and not quite two weeks after Rita came ashore.
Higher inflation expectations were at least partly to blame for the downward revision to second-half real GDP forecasts, with three out of four analysts ramping up their forecasts for Consumer Price Index increases in 2005.
The consensus forecast for consumer inflation this year rose to 3.3 percent from 3.1 percent a month ago, with the third-quarter increase bumped up to a 4.4 percent rate from 3.4 percent a month ago and the fourth-quarter outlook revised up to 3.5 percent from 2.8 percent in September.
"While the consensus continues to believe inflation will ease next year, forecasts of how much it will increase have crept higher over the past two months," the newsletter said.
Inflation was projected to slow to a 2.9 percent pace in 2006, up from September's 2.7 percent estimate.
"Responding to the increased inflationary threat, the Federal Reserve is expected to hike interest rates by at least an additional 50 basis points."
The U.S. central bank has raised short-term borrowing costs 11 times since mid-2004 and expressed its intent to continue its policy tightening to keep potential inflation in check.
