WASHINGTON, June 23 (UPI) -- American Bankers Association economists Wednesday predicted mild inflation and a moderate rise in interest rates for the U.S. economy.
Gains in wages and productivity as well as stabilizing commodity prices will help stem inflation, the ABA's Economic Advisory Committee said. The EAC predicts the underlying inflation rate will stabilize around 2 percent. Mortgage rates are also expected to rise modestly, falling in the range of 6.5 percent to 7 percent.
The Federal Reserve will likely raise rates by 25 basis points at the June meeting, the EAC said, to stop inflation from rising. Higher inflation could pose a threat to ongoing economic growth.
The Fed's rate increase means that borrowing rates for consumers and small businesses are likely to rise slowly. The rise should also cool off the housing market, Easer said.
"The economy has very good momentum," said Lynn Reaser, EAC chairwoman. "Increased spending by the business sector has now joined consumer spending."
The EAC also forecast that the U.S. economy will grow at an annual rate of about 4.5 percent for the rest of 2004 and almost 4 percent during 2005.
