The Securities Industry and Financial Markets Association’s Economic Advisory Roundtable predicts that the pace of U.S. economic growth will accelerate through the balance of this year and into 2008.

The median forecast anticipates below-trend GDP growth of 2.2% in 2007, increasing to 2.8% in 2008 as the economy works through the housing sector correction. Additionally, the consensus is that the Federal Open Market Committee will leave the target Fed funds rate unchanged at 5.25% at least through the rest of this year and into 2008.

The roundtable, comprised of a panel of senior economists at SIFMA member firms, also forecasts equity prices to continue to rise, and the median projection has the S&P 500 index at 1,575 by year-end 2007, which would represent an increase of over 11% from year-end 2006.

“The conditions remain in place for continued sustained economic growth,” said Michael Decker, senior managing director, research and public policy at SIFMA, in a news release. “Moderating inflation, historically low levels of unemployment, personal income gains and continued strong consumer spending more than offset the effect of the housing downturn. While the housing recovery may be delayed, the committee sees strength in other areas supporting an economic expansion into next year.”

SIFMA reports that the median forecast anticipates GDP growth to increase from 0.6% in the first quarter to 3.2% in the second quarter, 2.6% to 2.8% during the second half of 2007 and 2.9% in the first half of 2008. The economists point to employment and income gains as the main drivers of consumer spending, which is expected to increase by 3.3% in 2007 and 2.7% in 2008. Growth in business capital investment is expected to tail off to 3.7% in 2007 and recover to 5.0% in 2008, although this is lower than the capital spending growth of the last few years.

While the inflation threat remains a concern in the markets, the median forecast for “headline” inflation, as measured by the PCE deflator, declining from 2.3% to 2.0% in 2008. The core PCE deflator is expected to be 2.0% this year and next, lower than the 2006 level but still near the top of the range that many Federal Reserve officials would deem acceptable. Low inflation expectations and market confidence in Fed policy have helped to anchor wage and price setting patterns, and global competition is also likely to keep the inflationary pressure in check, it predicts.

Panelists see the housing recovery delayed until 2008 due to the continued imbalance between supply and demand as well as homebuilder and home buyer caution. They see housing as the dominant risk to the economic growth forecast.

The median forecast expects the yield on the 10-year Treasury note rising only slightly from the current level to 5.20% during the third quarter and 5.25% at year-end, then holding steady over the first half of next year. In addition, the median projection foresees the 2-year Treasury yield at 5.06% at the end of the third quarter, rising to 5.10% at the end of the year and declining modestly to 5.00% in June 2008, reflecting the consensus view of stable FOMC policy into 2008.