Economists cut forecasts and see more Fed action

The economic recovery will fade as government supports dry up, and the Federal Reserve may need to do more to boost growth, economists said in a survey on Tuesday.

The monthly Blue Chip poll of leading economists showed nearly 70 percent had lowered their economic growth forecasts in the past month.

The consensus now expects gross domestic product to expand at a lackluster 2.4 percent pace in the third quarter, down from a July forecast for 2.7 percent. For the fourth quarter, the economists expected a growth rate of 2.7 percent, down from 2.8 percent a month ago.

Waning federal fiscal stimulus and smaller contributions to growth from business inventories are widely expected to weigh on GDP growth going forward, Blue Chip said.

Of those who reduced their second-half forecasts, nearly two-thirds cited lower consumer spending as the primary cause.

With demand weak, the jobless rate is likely to fall only slowly, hitting 9.4 percent by December. That would be only one-tenth of a percentage point below July's level and suggests unemployment will barely budge before November's midterm congressional elections.

The economists predicted a monthly gain of around 119,000 in private sector jobs for the rest of this year, and 173,000 a month next year. At that rate, the economy would have recovered less than half of the jobs lost during the recession by the end of next year.

The poll was conducted August 4-5, just before the Labor Department released its July employment report, which showed a smaller-than-expected gain in private sector jobs.

Some 55 percent of those polled thought the Fed would take additional steps to support the economy in the next 12 months. The Fed's policy-setting committee meets on Tuesday, and it is expected to discuss additional measures.

As for fiscal policy, the overwhelming majority -- 83 percent -- expected Congress to allow tax cuts to expire for those making $250,000 or more annually. President Barack Obama has said he wants those cuts to expire, but many Republicans a and a few Democrats have objected, saying the higher tax rates could stall the economic recovery.

(Reporting by Emily Kaiser; Editing by Kenneth Barry)