Bloomberg News

WASHINGTON - The economy is on track to slow just enough in the second half of this year to hold inflation in check and achieve the "soft landing" desired by Federal Reserve policymakers, according to a survey of economists.

Growth will probably average a 3.7% annual rate in the final six months of the year, according to the median forecast of the 33 economists surveyed by Bloomberg News. That would be down from a 5.5% first-quarter growth pace, and close to the consensus forecast of a 3.5% rate for the second quarter. The second-half forecast is in line with the Fed's growth estimate for all of 2000, and poses no threat to end the record nine-year expansion.

"Whether the Fed closed their eyes and pushed the button or they have a remarkably good crystal ball, it seems like they are going to get the kind of slowdown they wanted," said Paul Christopher, an economist at A.G. Edwards & Sons in St. Louis.

After six interest rate increases by Fed policymakers in the past year, retail and auto sales have fallen for two straight months. On Wednesday the Conference Board reported its index of leading U.S. economic indicators fell 0.1% in May after being unchanged in April. The New York group's index is intended to gauge economic performance over the next six to nine months, and the second straight month without an increase reinforces expectations of slower growth.

The Fed's rate increases may have helped trim a rise in the consumer price index, the survey showed. Over the last half of this year prices will probably be about 3% higher than a year ago, down from the forecast of a 3.2% year-over-year inflation rate for June and March's 3.7% increase.

Central bankers decided at their most recent policy meeting last week to hold the overnight bank lending rate at a nine-year high of 6.5% and said they are watching for further signs the economy is slowing while maintaining an inflation alert. The Fed will likely increase the overnight rate one more quarter-percentage-point at its Aug. 22 meeting, according to the latest Bloomberg News forecast.

The overall gross domestic product will probably expand this year by 4.8%, the fastest pace in 16 years, the forecast showed. The economy grew 4.2% last year and 4.3% in 1998. Much of this year's growth, however, will be a result of the first-quarter spurt.

Still, the cooler growth expected in the second half "isn't slow by any historical standard," said David Orr, chief economist at First Union Corp. in Charlotte, N.C. From 1975 through 1999, the economy expanded at an average rate of 3.2% a year.

The economy could cool further in 2001. The current forecast sees growth slowing to about 3.2% in the first six months of next year, with the year-over-year inflation rate falling to 2.6% and unemployment rising to 4.1%.

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