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Experts Confident US Economy will Improve in 2004 - 2004-01-30

Wall Street analysts are generally upbeat about the prospects for the U.S. economy this year. Despite some lingering concerns, some economists expect the U.S. economy to grow at a healthy rate in 2004.

After a year which saw the U.S. economy begin to recover, some Wall Street pundits say the outlook for economic growth continues to be positive. According to Mellon Financial Corporation's Chief Economist Richard Hoey, low interest rates, federal tax cuts and a weaker US dollar are fueling an economic boom, which he expects to spill over into the rest of the world.

"The recession is over," he said. "We're in an economic expansion, and things aren't perfect but they're basically pretty good right now."

Mr. Hoey participated in a briefing to journalists about the global economy, sponsored by Dow Jones. He forecasts that real gross domestic product in the United States to expand by 4.5 to 5 percent this year. But he expects inflation to remain low despite the strong economic growth. That's because of excess capacity in the goods and labor markets, intense global competition and strong productivity growth. Nonetheless, he believes the continued upturn in the U.S. economy will eventually prompt the U.S. Federal Reserve to begin raising interest rates, perhaps as early as this summer.

But Andrew Weiss, Assistant Vice President of AIG Financial Services doubts interest rates will go up this year. He says the Federal Reserve is worried that a rise in interest rates might lead to deflation.

"There is still tremendous slack in the economy that creates an output gap that could put further downward pressure on prices," he said. "And with the Fed quite cognizant of that, it is unlikely that they would want to start a tightening cycle without thinking through the impact that would have on U.S. demand."

Most economy-watchers agree that the large U.S. budget and current account deficits are worrisome. But, they also point to other more serious problems that could put the brakes on the expanding U.S. economy.

Mellon Financial's Richard Hoey says the biggest risk to strong economic growth this year is a trade war.

"The stresses in terms of trade and economic policy are intensifying in terms of protectionism," said Mr. Hoey. "So you can have a little bit of protectionism and not create a problem but if protectionism gets to be a sudden surge, a trade war, that would be a very very dangerous situation."

But Mr. Hoey says although a major trade dispute would have the potential to drastically slow down economic growth, the chances of it happening are slim.