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"OK, we


mean it this time. The economy


going to slow in 2000."

Or so might go the collective cry of economists, most of who missed the dartboard completely on predicting economic growth in 1999.

"We're always looking for a slowdown," chuckles

Northern Trust

chief U.S. economist Paul Kasriel (who -- yep -- is looking for slowing).

Last year, the mantra among economists was this: Consumer spending and business investment -- which account for more than 80% of

gross domestic product



to slow somehow. Bollocks. As consumers and businesses proved in 1999, they can spend lots of cash and won't stop due to some enlightened sense of having done enough.

Perhaps with that in mind, of eight economists polled by

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, only two are looking for a growth rate slower than 3% in 2000, while several are looking for growth just under 1999's approximate 4% rate. Some, flummoxed by the equity market's strength, have a built-in caveat, forecasting spending to slow only if stocks correct in 2000.

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Economists were virtually unanimous in their prediction that the

Federal Open Market Committee

will raise the target

fed funds rate

from the current 5.5% at least two or three times.

That's probably going to send bond yields higher, although a few economists say it won't necessarily, because the market is already counting on one or two hikes. Only the most optimistic of economists believe

30-year Treasury

yields will end the year far below the current 6.65% level. The lowest prediction is 5.7%; the high end is 7%, implying a much less volatile year than 1999.

Those polled believe the core rate of inflation will probably rise by about one-half a percentage point from the current 2.1% rate.

Hold On, Fed's Comin'

An old adage says that economic expansions don't expire naturally; the

Federal Reserve

kills them. "History suggests we don't see a slowdown until the Fed starts to act," says Kasriel, who's looking for 3% growth. "There's going to be a slowing because of the cumulative effect of the 75-basis-point hike in 1999, and we're assuming another 75 will come on top of that."

Economists believe the Fed's going to be fighting inflation, with most forecasting the core

Consumer Price Index

to rise by the end of the year.

The favorable benefits of global recession are all but behind the U.S., and many believe world economies will grow further this year, pressuring the dollar. "The market benefited from those inflation suppressants over the last four years," says Tony Crescenzi, chief bond market strategist at

Miller Tabak

. Propelled by rising health care costs and commodity prices as well as the weakening dollar, core CPI will rise to 2.6% by year-end, he predicts.

So far, those factors haven't resulted in widespread consumer inflation. But the Fed fears that they will if demand continues to run at this Mach-3 type pace.

"There's been a subtle turning point in the economy," says Diane Swonk, deputy chief economist at

Bank One

, who sees the core CPI rising to 2.5%. "The best inflation news is now behind us."

People Won't Stop Spending...

Consumer spending likely grew at about a 5% rate in 1999. Capital spending probably grew at an 8% pace. Most economists expect a bit of slowing in both areas due to rising interest rates and falling corporate profits. But some economists think the Fed's going to have to be aggressive because the economy has so far resisted the Fed's efforts to tighten credit.

"What it takes to slow down consumers is a lot more than what people think it takes," says Swonk.

Despite the fourth-quarter surge in interest rates, borrowing costs remain relatively low by historical standards. Banks raise key lending rates after a rate hike, but bond yields don't necessarily respond immediately. Between the Fed's June 30 hike and the second on Aug. 24, bond yields barely budged. Only when it became clear that a third hike was coming did borrowing costs rise significantly.

"Basically, the Fed could be tightening while the markets are easing," says Crescenzi. "We saw that in July, when the Fed raised rates, and financial conditions loosened."

There are other reasons why economists are expecting a slowdown. The interest-rate-sensitive housing sector, a leading indicator of future spending, appears to be slowing.

Sales of existing homes

are off 9.5% from the June 1999 peak.

Chase Securities'

director of U.S. policy research, James Glassman, adds that a huge amount of spending has been on cars, and big-ticket purchases of that type are more like investment, representing "spending that would have taken place next year."

Business investment will decline due to rising inflation and borrowing costs. Some economists think Y2K preparations accelerated business spending that would have happened in 2000. Kasriel, admitting this theory is unproven, thinks that "people decided to do what they had to do now, ahead of Y2K."

...Until Stocks Tell Them To

However, many economists, looking back at 20%-plus gains in the stock market during the last five years, hit a wall when factoring in the stock market's effect on spending decisions. Some are convinced it's altered habits permanently -- others think it's just one of a number of favorable factors.

"Forecasting has become a much different exercise in the last year or two, because you can't forecast the economy without having some view on the stock market," says


chief economist Mike Moran.

Barclays Capital

bases its forecast of 2.5% to 3% GDP growth on a 10% correction in stocks. Barring that correction, the firm thinks growth will remain at 4%. Moran's looking for 3.5% growth but says his "main story" for 2000 was the diminishing wealth effect, and slower spending. But because of the market's performance, "the foundation of the forecast is being torn apart."

Others, like


chief economist Brian Fabbri, believe the stock market has a lagging effect on spending habits, so even if the market contracts, he doesn't think consumers will react until late in the year. "I think stocks won't rise as much as they did this year, but there's still a fallout from last year's gains," he says.

Swonk, who's looking for a 3.7% growth rate, thinks wage growth and low interest rates are more important than stocks, which despite having a place in about 50% of homes, are still largely the province of the wealthiest 10% of the population.

Bonds: Not as Bad as in 1999

Economists agree that Treasuries won't stink as much as last year, though it won't be a good year either. Several believe the benchmark 30-year bond's yields will end 2000 near 7%, while others see yields peaking at that level around midyear before declining as the economy starts to slow.

Glassman believes the market is already pricing in upcoming Fed rate hikes, and therefore won't react badly when the Fed actually does what the market expects. Chase's forecast is for a 5.7% 30-year yield by year-end.

Crescenzi counters that inflation remains a threat, which will hurt bonds. He also sees, with Asian and European economies growing, the potential flight of foreign capital to those regions. That's going to hurt the dollar and U.S. markets.

Economists aren't bullish on other bond markets. With falling corporate profits and worries about a higher default rate, the outlook for high-yield bonds, in particular, isn't strong. "Treasuries and probably triple-A investment grade

corporate bonds

are going to outperform other sectors because of credit quality concerns," Kasriel says. Swonk still believes in following the money. "I'm still bullish on equities," she says. "But the days of easy money, I think, are passing. The game is still to get out of bonds more than anything."

Senior writer

Elizabeth Roy contributed to this story.