WASHINGTON -- The Federal Reserve will probably keep boosting short-term interest rates into 1995 to counter a small upturn in inflation in a robust economy, an economic advisory panel of the Public Securities Association predicted yesterday.
The panel forecast that Fed tightening will push the yield on three-month Treasury bills to 4.60% by the end of the year and to 5% by June 1995. Lately, three-month bills have been going for around 4.20%.
However, long-term rates are not expected to change much. The panel forecast that the yield on the 30-year Treasury bond will hold steady at 7.40% until next June. The rate on The Bond Buyer 20-bond index is forecast to fall to 6. 1 0% by the end of the year and then rise to 6.30% next June.
The panel, made up of a dozen economists from major banks and brokerage firms, said strong economic growth is likely to push up consumer prices by 3.4% in 1995, following an estimated 2.9% increase this year.
The PSA economists said that they expect U.S. gross domestic product to rise by 3.3% this year, exceeding the economy's long-term growth potential. Many economists estimate the 1994 GDP growth rate at around 2.5%, or slightly higher. In 1995, growth will moderate to a 2.7% pace as the economy reacts to the Fed's rate increases, the panel predicted.
The PSA advisory group is cochaired by Frederick Breimyer, chief economist for State Street Bank and Trust Co., and by Robert Giordano, chief economist for Goldman Sachs Co.
