Faced with a slowdown in consumer spending growth that is likely to persist, and with a sagging stock market, the U.S. Federal Reserve will not move to raise interest rates until the second half of next year, Goldman Sachs forecast in a research note.

The shift in outlook, which Goldman said it made Monday, is a significant revision from the firm's previous expectation for the first hike to come in November.

It also reflects a seismic shift in market expectations that has taken place over the past several months over when the Fed will lift its key federal funds rate from its current four-decade low at 1.75 percent.

"We are more confident that U.S. growth will remain slow," Goldman economists said. "This is because the slowing in consumer spending is firmly rooted in fundamentals that are not likely to change soon."

Consumer spending accounts for two-thirds of the economy.

Goldman expects annualized growth to have cooled to 2.0 percent in the second quarter from a blistering 6.1 percent pace in first three months of the year.

Forecasters at the leading investment bank do not expect growth to pick up to a more robust clip -- 3.5 percent -- until the third quarter of 2003, held back in part by sluggish job creation and tepid income gains.

Goldman also said the recent slide in equity prices had neutralized the loosening of financial conditions that 4.75 percentage points of interest rate cuts by the U.S. central bank helped to deliver last year. Last week, the broad Standard & Poor's 500 stock index fell to a 4-1/2 year low.

Finally, Goldman cited a recent Fed study on Japan's experience with falling prices and stagnant growth that outlined the need for central bankers to err on the side of more accommodative policy when the inflation rate is close to zero as a reason to shift its forecasts for future Fed policy.

While Goldman said it was not likely Fed officials are overly concerned about the prospect of deflation, Goldman's forecasts for the consumer price index (CPI) are for a mere 1.7 percent year over year by the fourth quarter of 2002. The CPI grew in May at a paltry 1.2 percent annualized rate.

"The overall conclusion is that monetary and fiscal policy should be geared to err towards excess accommodation at a time when the inflation rate is extremely low and growth is below its long-term trend," Goldman wrote.