Fifth Consecutive Year of Growth Is Predicted --- Economists in Survey Also See Lower Rates in First Half
NEW YORK -- The U.S. economy will expand for a fifth consecutive year, with interest rates falling in the first half and then rebounding slightly in the last six months, according to a survey of 35 economists by The Wall Street Journal.</br></br>But most agree the expansion will be weak for at least the next several months. They predict that the Federal Reserve System soon will face intense pressure to reduce interest rates to keep the economy from sinking into a recession.</br></br>"My forecast assumes the Federal Reserve will cut the discount rate twice" by midyear, each time by half a percentage point, says Lyle E. Gramley, a former Federal Reserve governor now chief economist of the Mortgage Bankers Association of America. That would bring the discount rate, which is the fee the Fed charges on loans to banks and savings institutions, to 4 1/2%, its lowest level in about 14 years.</br></br>Despite the dollar's decline on the foreign-exchange market last year, the nation still is running a huge trade deficit, sapping strength from the economy. Analysts were startled by a Commerce Department report last Wednesday that the trade deficit grew to a record $19.22 billion in November, mainly from a surge in imports. Many economists expect the deficit to narrow significantly this year, but others fear the process will be slow.</br></br>Tax changes that took effect Thursday are likely to depress business activity in the first half, many analysts say. They say some of the economy's fourth-quarter strength probably reflected a scramble by businesses and consumers to take advantage of the more lenient tax rules that were in effect last year.