The U.S. economy will grow at a sluggish pace for the remainder of this year and into 2007 as the worst of inflationary pressure is yet to come, a survey of top forecasters showed on Thursday.

Panelists surveyed in the Blue Chip Economic Indicators newsletter predicted that inflation-adjusted gross domestic product will grow at an annual rate of 2.7 percent in the second half of this year, a 0.15 percentage point less than was estimated a month ago.

Inflation remains a wildcard. While GDP growth is clearly moderating, inflation excluding food and energy prices (core inflation) has yet to show signs of cresting, the newsletter said.

The panel predicted that real GDP will increase 2.7 percent for 2007 as well, with some small improvement in the second half of next year.

The consensus forecast among panelists was that payroll growth outside the farming sector in this year's second half will be better than the monthly average of 112,000 over the last four months.

Still, panelists put the odds of a U.S. recession within the next 12 months at 26.9 percent, up from 22.3 percent forecast a month ago.

Consumer demand remains hampered by high gasoline prices, limited savings and concern about fading housing wealth, the newsletter wrote.

The Blue Chip survey was conducted at the end of last week, but issued after this week's decision by Federal Reserve policy-makers to keep the federal funds rate target at 5.25 percent, pausing a cycle that had taken the rate steadily higher in 17 successive hikes since mid-2004.

In earlier forecasts, the economists surveyed were less certain the Fed would pause at this latest Federal Open Market Committee meeting. But now nearly 47 percent of the panelists expect the central bank to raise its target rate to 5.5 percent following the December meeting.

Among those surveyed, 38 percent believe rates will remain at 5.25 percent at the Fed's last meeting this year.

Crucial to the belief that overall inflation will retreat is the assumption that energy prices will stabilize and that the pass-through of prior increases in energy costs into the prices of other goods and services will remain limited, the newsletter wrote.

The central bank is scheduled to meet three more times this year to set interest rate policy.

A Reuters poll on Tuesday underlined doubt in financial markets about the Fed's future course. Thirteen out of 23 primary dealers, the biggest Wall Street firms, said they thought the Fed was done raising rates and some thought rate cuts were possible by early 2007.

Only four of the 23 dealers expect a rate rise from the next FOMC meeting, scheduled for September 20.

Inflation