Rate hike by Fed called unlikely
By Barbara Hagenbaugh and Barbara Hansen
USA Today
The Federal Reserve will stay on the sidelines well into the summer as moderate economic growth and low inflation buy policymakers time before raising interest rates, according to a survey of 51 economists by USA Today.
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The Fed meets tomorrow.
Federal Reserve Chairman Alan Greenspan doesn't want to hurt an economic recovery by raising interest rates.
"The pace of growth will be OK, but it's not going to be alarming," Bank of America economist Tim Martin says.
Half of the economists surveyed say they do not expect the Fed to raise its target for short-term interest rates, which affects borrowing costs across the economy, until August. That means the Fed could leave rates alone both tomorrow and at its meeting in late June. A quarter of the economists expect rates will stay at their current 40-year low until fall or even later.
"The Fed will not raise rates until they are convinced the recovery is sustainable," Putnam Investments economist Robert Goodman says. "They don't want to get blamed for aborting a recovery."
Gross domestic product, the broadest gauge of the economy's health, will expand at an annual rate of 3.1 percent this quarter and total 3.7 percent for 2002, according to the economists surveyed April 26-30. While GDP grew at a 5.8 percent annual rate in the first quarter, analysts expect the growth rate to be slower for the rest of the year.
Inflation is expected to be 1.8 percent in 2002, up from 1.6 percent in 2001.
But the economists say there are risks:
- Continued war in the Middle East or a U.S. invasion of Iraq. Both situations could lead to oil and gasoline price surges.
- Stock prices continue to slide. Soft stock prices dampen consumers' spirits and business spending.
- Continued gloomy mood among CEOs. That could delay hiring and business investment.
- Another terrorist attack.
