Boston, MA, September 11, 2006--The economy should slow significantly through 2007, but with just a one-in-four chance of falling into a recession, a group of business economists said Monday.
"Growth is not as robust as it was in the spring, but the economy is by no means going dormant," said Carl Tannenbaum, president-elect of the National Association for Business Economics and chief economist for LaSalle Bank/ABN Amro in Chicago.
The survey of 50 NABE members concluded that the economy would likely slow to a rate of 2.6% growth in the second half of 2006 and 2.8% in 2007. The economy grew 3.1% in 2005.
The slower growth should allow the Federal Reserve to hold its interest-rate target steady at 5.25%, a majority of those surveyed said. However, a sizable minority were of the opinion that the Fed would have to raise rates again this year, perhaps three more times.
The Fed should begin cutting rates in the first half of 2007, the panel said.
High energy costs were mentioned by 46% of the panel as the biggest economic risk. Rising interest rates were named by 22%, followed by 20% mentioning declining home prices.
Inflation is likely to be hotter than the group had previously thought. The consumer price index is likely to rise 3.3% in 2006, up from the 2.5% that NABE had forecast in May. For 2007, the CPI is expected to rise 2.4%.
The NABE group expects core inflation to average 2% over the next five years, at the upper limit of the Fed's implicit comfort zone.
