WASHINGTON — Economists surveyed by the Philadelphia Federal Reserve Bank upgraded their outlook for U.S. economic growth and the stock market, but inflation expectations were revised downward and interest rates are expected to remain relatively stable.

The Livingston Survey Thursday showed the consensus forecast for GDP growth in first half of 2013 was upgraded to 2.2% from 2.1% in the December survey. Growth forecasts for the second half of 2013 held firm at 2.3% while GDP growth for the first half of 2014 is expected to be 2.8%.

The unemployment rate is also expected to come down more than originally expected, with the latest survey revealing that participants now expect the unemployment rate to fall to 7.5% in the first half of 2013 versus the December forecast of 7.8%. The unemployment rate for the second half of 2013 is expected to be 7.4% before falling to 7.2% in the first half of 2014.

Despite being more bullish on economic growth, the survey respondents revised down their inflation outlook and believe interest rates will be about the same.

Participants forecast that inflation as measured by the Consumer Price Index will be 1.5% in 2013 - which is below the original forecast of 2.1%, while the Producer Price Index is forecast to be up 1.3% in 2013 vs. the previous forecast of +2.4%. CPI for 2014 is forecast to be up 2.0% and PPI is expected to be up 1.5%.

The economists' forecasts for interest rates were relatively unchanged despite the upgrade on growth and downgrade on inflation.

The participants expect the 3-month Treasury bill interest rate to be about 0.10% in 2013 before rising to 0.20% in 2014. The interest rate on 10-year Treasury notes is expected to be 2.00% in 2013 before rising to 2.65% in 2014.

In the previous survey, the participants forecast the 3-month Treasury bill to be at 0.11% by the end of 2013 and 0.20% in 2014. For the 10-year Treasury note the economists forecast 2.20% at the end of 2013 and 2.75% at the end of 2014.

The consensus forecast for the S&P 500 index was also upgraded. The economists believe the stock market will rise to 1667.8 by the end of 2013 and 1750.0 by the end of 2014. In the December 2012 survey, the economist forecast the S&P 500 to be 1460.0 by the end of 2013 and 1550.0 by the end of 2014.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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