Business Forecasters See Slower Economy This Year : Growth: NABE survey predicts the Fed will begin lowering interest rates to avoid recession.

From Associated Press

After a high-flying 1994, the economy will slow so much this year that the Federal Reserve Board will begin lowering interest rates to avoid a recessionary crash, many top economic forecasters predict.

"There seems to be little doubt that the economy is slowing down," Maureen A. Haver, president of the National Assn. of Business Economists, said Monday.

"The big question is how smooth the transition will be," she told reporters in announcing results of the association's latest quarterly forecast survey. "Our NABE panel seems to see a smooth landing."

The consensus of the 48 forecasters surveyed earlier this month calls for economic growth to slow from 4% in 1994--the best in 10 years--to 2.4% by the end of this year and 2.2% by the end of 1996.

The consensus also sees the Fed raising short-term interest rates one more time early this year because of continuing strong growth, then reversing course in the fall to avoid slowing the expansion so much that it causes a recession.

"It seems our panel has decided that once growth slows to below . . . (2.5%), the Fed will not wait long to begin supplying the economy with additional liquidity," the survey summary says. "Failure to do so might turn a growth recession into the real thing!"

The Fed has gradually doubled short-term interest rates to 6%, from 3% in February, 1994, in an attempt to keep inflationary pressures from boiling over.

The NABE forecast predicts economic growth of 3% at an annual rate in the current quarter. "Then, starting in the second quarter, the panel expects growth between 2.15% and 2.5% for the next six quarters," it says.

While forecasting a "smooth landing," Haver said, "we know that there's this possibility of wind shear and this landing may be a bit bumpier than we all anticipate.

"I think the biggest risk is the Fed continuing to tighten," she said, adding that the Mexican financial crisis and declining business investment and consumer spending are other hazards.

The forecasters believe that much of the anticipated slowdown will be based in interest-sensitive sectors, such as automobile sales, capital spending and housing. They also see a sharp drop in inventory investment.

The NABE consensus predicts that inflation will remain moderate, rising from 2.7% in 1994 to 3.4% in 1995 and 3.6% in 1996. That would be little more than half the 6.1% inflation rate of 1990.

Although the forecasters believe that the slower economy will keep inflation from boiling over, they expect it to cause a slight increase in unemployment. They see the jobless rate climbing to 5.7% in 1996 after falling to 5.5% this year from 6.1% in 1994.

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