Fed Survey Boosts Forecast for Growth

The U.S. economy will grow 3.4% this year, faster than previously forecast, and the labor market will strengthen, according to a Federal Reserve Bank of Philadelphia survey released Monday.

The median forecast of 53 economists in the quarterly survey is 0.2 percentage point higher than the previous forecast made three months ago. Stronger growth this year will come at the expense of slower growth in 2007. The economists revised their prediction for growth next year to 3%, compared with the 3.2% previously estimated, the report said.

The nation’s unemployment rate will average 4.7% in 2006, the survey said, while inflation will remain tame. Federal Reserve policymakers have raised interest rates 16 straight times since June 2004 and have signaled they may be getting close to ending the campaign.

“Consumer spending has a lot of momentum here,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York and one of the economists in the survey. He said Barclays expected “more Fed tightening, which leads to somewhat slower growth next year.”

The economists said interest rates might rise more than previously forecast. The yield on the 10-year Treasury note may average 5.1% this year and 5.2% next year, the forecasters said, marking upward revisions of 0.3 percentage point and 0.2 percentage point, respectively, from the previous survey.

The forecasters said inflation as measured by the consumer price index would average 2.6% this year when measured in the fourth quarter compared with the same period last year. That’s up 0.2 percentage point from the previous survey. Consumer prices are expected rise 2.4% in 2007.

The forecasters’ expectations of a 4.7% jobless rate in 2006 was down from a 4.8% estimate in the previous survey, the Philadelphia Fed said.