WASHINGTON - Loan demand should drop slightly this year as the Federal Reserve's continued interest-rate hikes begin to slow the economy, a group of bank economists said Wednesday.
Members of the American Bankers Association's Economic Advisory Committee said they expect loan growth to fall from 9% last year to 7.5% this year.
The Fed's rate hikes also should cause mortgage rates to peak within the coming months, before dropping through the rest of the year, the economists said in their semi-annual economic report.
Before mortgage rates can fall, however, the Federal Open Market Committee will act twice more, raising rates 50 basis points at its meeting next week, and boosting them another 50 basis points by late spring or early summer.
"The feel from the committee is that currently the economy is still very strong and there is some inflation bubbling under the surface," said Alan M. Gayle, senior vice president of Capitoline Investment Services Inc. and chairman of the committee. "That justifies two more increases."
The economists also predicted growth will moderate at 2.6% this year, down 1% from last year. And, they said inflation should increase from 2.7% in 1994 to 3.5% this year.