NEW YORK (Reuters) - The United States economy is likely to return to trend growth in the second half of 2007, and those betting on a string of Federal Reserve rate cuts could be disappointed, a top fund manager with Pioneer Investments said on Tuesday.
"There's no reason in the fundamental economy to lower rates," Margaret Patel, senior vice president and portfolio manager at Pioneer Investments in Boston, said at the Reuters Investment Summit in New York. "After mid-year, it's at least 50-50 that we could see the Fed start tightening."
Although there is still a risk that weakness in the housing market will bleed through to other parts of the economy, Patel said the Fed's focus would stay on containing inflation.
"To me there's been a bias about being a bit more up-front on inflation. There is tougher talk on inflation" coming out of the Fed, she said.
Patel said much of the global economy is in "great shape," and that U.S. inflation would likely stay above the Fed's comfort zone going into the new year.
U.S. gross domestic product growth for 2007 could be in the 3 percent to 3.5 percent range, after running at 2 percent to 2.5 percent, annualized, in the first half of the year, she said.
"I really can't see the Fed cutting if the economy is motoring along at 2.5 percent to 3.5 percent and if inflation is still on the high side of 2 percent," she said.
The Federal Open Market Committee is expected to leave benchmark rates at 5.25 percent FFF7 at Tuesday's policy meeting. However, financial futures EDM7 fully price a cut to 5 percent by the end of June.
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