Slow growth and lower inflation ahead mean the U.S. Federal Reserve can hold the line on interest rates for now and then let them fall in 2007, say analysts at Global Insight, an economic forecasting firm based in Waltham, Mass.
"There is a risk that the Fed may decide to take out a little more insurance against labor cost inflation by hiking rates early in 2007, but we think it more likely that the next move will be a rate cut," says Global Insight.
Indeed, its forecasters anticipate three 25-basis-point cuts in the influential federal funds rate, beginning in May. That would mean the federal funds rate, now at 5.25%, would be at 4.5% by the end of 2007.
