SOME OF THE FOG that has been making economists' crystal-ball gazing more difficult than usual seems to be lifting, enabling us to sketch what the rest of 2006 might look like.

We can safely assume that President Bush has written off any chance of major progress in the Doha round of trade-opening talks, and decided to move cutting the budget deficit up on his list of legislative priorities. That is clear from the fact that he has moved Rob Portman, the U.S. Trade Representative, over to the Office of Management and Budget (OMB). It is hoped that the former congressman's popularity and his reputation as a budget balancer will enable him to rally the fractured Republican majority to support the president's spending cuts. Portman's former deputy, and now his successor, Susan Schwab, is able, but unlikely to carry as much weight with free-trade skeptics in Congress as Portman did. If you doubt that Doha has been derailed, consider the chortle of Lori Wallach, representative of a group opposed to further trade-opening, who told the press, "This does not bode well--ha, ha, ha!--for Bush's trade agenda. What a tragedy!"

On the trade front it is also reasonable to guess that China will finally do something about the rampant theft of intellectual property that it has encouraged. On his visit to Microsoft's home town of Seattle, Washington, Chinese president Hu Jintao finally promised to require computer manufacturers to include licensed, rather than pirated, software in their machines. This concession was aimed at defanging critics in

China will also continue the policies that allow its undervalued currency to inch upward. But Hu made no concessions to President Bush's concerns on important foreign policy issues--the nuclear weapons policies of Iran and North Korea, and China's rapid expansion of its military's ability to project power in the region. Instead, he seemed content to rally support from American businessmen (Boeing, Microsoft, Starbucks, and the recipients of some $16 billion in orders), and leave our president's plea for international cooperation unanswered. Lenin once famously said that a capitalist will sell you the rope to hang him with--update that to include software, aircraft and grande lattes.

Meanwhile, the dollar is likely to drift downward. The Fed is giving clear signals that it will soon stop its ratcheting up of interest rates after 15 consecutive quarter-point rises, perhaps calling a halt at 5 percent, perhaps at 5.25%. The Fed is sensitive to the criticism that it typically overshoots when it takes rates up, and has its eye on developments in the interest-rate sensitive housing market, which is finally cooling.

Housing starts fell 7.8 percent in March, and mortgage applications have dropped in response to a rise in mortgage interest rates--30-year fixed-rate mortgages now command 6.5 percent, up from under 6 percent last year and the highest rate in almost four years. Little wonder that home builders, their inventories of unsold homes rising, are more pessimistic than they have been since the few months immediately following 9/11.