Economy seen rebounding strongly in 2006

updated 11:12 a.m. ET Feb. 27, 2006

WASHINGTON - The economy ended 2005 like a lamb and is roaring back like a lion, a resounding rebound that economists say will lead the Federal Reserve to raise interest rates in the months ahead.

The fresh forecast from the National Association for Business Economics has gross domestic product growing at a robust 4.5 percent annual rate from January through March.

The group earlier had predicted a 3.4 percent rate. If the revised forecast proves accurate, it would mark the best showing since the July-through-September period in 2003, when the economy expanded at a blistering 7.2 percent pace.

The government in April will release the GDP figure for the first three months of this year. GDP measures the value of all goods and services produced within this country and is the broadest gauge of economic performance.

Growth slowed to a crawl over the final quarter of 2005. The 1.1 percent pace was the most sluggish in three years. Blamed for the slowdown were the lingering fallout from the Gulf Coast hurricanes and belt tightening by consumers and businesses.

“Our forecasters expect the economy to shake off the effects of last year’s hurricanes and surging oil prices,” said the association’s president, Stuart Hoffman, chief economist at PNC Financial Services Group.

The forecasters predict this robust growth will lead the new chairman of the Federal Reserve, Ben Bernanke, and his central bank colleagues to raise interest rates at least twice more this year.

Bernanke will preside over his first interest-rate meeting on March 27-28.

For nearly two years, the Fed has tightened credit to keep the economy and inflation on an even keel. The most recent rate increase came on Jan. 31, at Alan Greenspan’s last meeting as Fed chairman.

A key interest rate controlled by the Fed now stands at 4.50 percent, the highest in nearly five years.

Economists, including some who had been uncertain about the future direction of rates, now say this rate will climb to at least 5 percent this year. After that, analysts say, the Fed probably will take a break and leave rates alone for a while.

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