Release Date: December 15, 2015
Contact: Carol Danko, 202.962.7390, [email protected]   

GDP Outlook Strengthens; Monetary Policy Still a Key Factor: 
SIFMA Roundtable of Economists Unveil End-Year 2015 Economic Outlook 

Washington, DC, December 15, 2015 – SIFMA’s Economic Advisory Roundtable unveiled today its outlook for 2015 and 2016, forecasting that the U.S. economy will grow at a solid 2.5 percent rate both this year and next. 

“The Roundtable forecasts continued solid growth, with GDP rising 2.5 percent this year compared to its  mid-year estimate of 2.2 percent, helping trigger the first Fed rate hike in a decade this Wednesday,” said Ethan Harris, co-head of Global Economics Research, at Bank of America Merrill Lynch and chairman of SIFMA’s Economic Advisory Roundtable. 

Monetary Policy & the Fed Rate Hike:   

The Roundtable expects the Federal Open Market Committee (FOMC) to raise the current 0.0 to 0.25 percent target federal funds rate range, with over 90 percent of respondents expecting the first rate hike to come at the meeting this week.

Survey respondents cited labor market conditions as the most important factor in the FOMC’s decision to raise rates, followed by readings of financial developments and inflation or inflationary expectations. Looking forward, one respondent noted, “The tightening will be slower than even the FOMC expects. The economy is still fragile, especially overseas.”  

The Economy:  

The median end-year forecast calls for 2015 GDP to grow by 2.5 percent on a year-over-year basis and by 2.2 percent on fourth-quarter-to-fourth-quarter basis, stronger than the 2.2 percent and 1.9 percent, respectively, predicted in the mid-year survey. 

Respondents expect 4Q’15 GDP growth to be 2.2 percent on an annualized basis, rising to 2.5 percent over the following four quarters. On a full year basis, GDP growth is also expected to be 2.5 percent in 2016. 

Employment is expected to continue to improve, with survey respondents predicting the unemployment rate fall from an average of 5.3 percent in 2015 to 4.7 percent in 2016, suggesting a bigger dip than the mid-year forecast of 5.4 percent and 4.9 percent, respectively. 

The forecast for “headline” inflation, measured by the personal consumption expenditures (PCE) chain price index, weakened slightly from the mid-year forecast, with 0.3 percent growth expected for full-year 2015 and 1.4 percent for full-year 2016.

Economic slack/unemployment was the dominant factor cited in the core inflation outlooks, as in prior surveys, followed by the strength of the U.S. dollar and commodity price pass through. One respondent noted that “inflation expectations are very important, but I expect them to be relatively stable.” 

Interest Rates: 

The median survey forecasts for 10-year Treasury rates were: 2.30 percent for December 2015, 2.43 percent for March 2016, 2.55 percent for June 2016, 2.65 percent for September 2016 and 2.70 percent for December 2016. The overwhelming majority of respondents expect the yield curve to flatten by mid-2016. 

Factors Influencing Economic Growth:   

FOMC interest rate policy was considered the most important factor impacting U.S. economic growth, followed by private credit market conditions and business confidence, unchanged from the mid-2015 survey.  Developments in the Eurozone, U.S. fiscal policy and developments in Emerging Markets were ranked a distant fourth through sixth.

Upside influences include  wage growth driving increasing demand for consumer durables and housing, while on the downside, the main area of concern was the negative impact of a downshift in global economic growth and the stronger U.S. dollar. 

Oil Prices:   

Panelists placed a 40 percent chance on West Texas Intermediate (WTI) crude oil prices being in a range between $41 and $50 a barrel at mid-2016, and predicted that this most likely scenario would have no impact on economic growth. Respondents estimated that WTI would settle at an equilibrium price of $64.80 per barrel three years from now, assuming continued moderate global growth. 

Policy-Related Issues: 

As in prior surveys, corporate tax reform was cited as the pending policy issue which could have the greatest potential impact on the U.S. economy, followed distantly by immigration reform and completion of the Trans-Pacific Partnership.   

On the impact of concern over the direction of financial regulatory policy on 2016 economic growth, respondents were more pessimistic on the likelihood of a significant drag to GDP growth than in the previous survey: 14 percent of respondents expected no impact; 65 percent expected a negative impact of up to 50 basis points, and 21 percent expected a negative impact of more than a 50 basis. 

The full report is available at the following link: http://www.sifma.org/eoutlook20152h/