Posted on: Thursday, June 30, 2005
Rates expected to keep on rising
By Barbara Hagenbaugh and Barbara Hansen
USA Today
WASHINGTON — The Federal Reserve will continue its yearlong, interest-rate-raising campaign through 2005 in a bid to keep inflation under wraps, economists surveyed by USA Today say.
The 55 economists, surveyed June 21-27, say they expect the economy to continue to grow solidly in the next year. But growth will not be so rapid as to spur huge increases in job creation or ignite a dangerous inflationary cycle.
"The economy is in pretty good health," Putnam chief economist David Kelly says. "It's not exciting, but ... you like a nice, moderate economic climate. Then the expansion can last for a good long time."
Fed Chairman Alan Greenspan and his colleagues will raise their target for short-term interest rates to 4 percent by the end of 2005 from the current 3 percent, the economists say.
National City chief economist Richard DeKaser says Fed officials are working to bring rates to a neutral level, at which they neither stimulate nor slow growth, after cutting them to historic lows in 2001. Even at 4 percent, the Fed's target would be far below the recent peak of 6.5 percent hit in 2000, suggesting Fed moves this year will not greatly pinch consumers or businesses.
DeKaser notes that more than two-thirds of homeowners have fixed-rate mortgages not affected by rising rates. "The majority of mortgage holders are relatively immune to this development," he says.
Five of the economists, including those at PNC Financial Services and Northern Trust, say they expect Fed officials will take a breather after this month's meeting to assess how their moves are affecting the economy. A few say the Fed will be cutting rates soon.
The Fed is expected to raise rates today at the end of its two-day meeting by a quarter-percentage point to 3.25 percent. It would be the ninth consecutive increase by the Fed since it began raising rates a year ago.
