New York, NY, June 9, 2021 – Today, SIFMA unveiled the results of its biannual survey of the chief U.S. economists of 27 global and regional financial institutions. Following the anniversary of the peak of the global pandemic, focus has turned from a normalization of GDP and improving unemployment to inflation, according to the new survey.

“As the economy recalibrates to a new post-pandemic equilibrium, we can expect to see at least temporary higher prices across multiple segments in inflation indexes, but the real question is whether inflationary pressures will prove temporary or underlying,” said Dr. Lindsey Piegza, Ph.D., Chief Economist and Managing Director at Stifel Financial Corporation and Chair of SIFMA’s Economic Advisory Roundtable. “For the foreseeable future, this unknown will be the focus both for the market and policymakers.”

The current uptrend is clear starting from February 2021, when vaccines were rolled out and the economy began preparing for a major reopening. In April, the inflation rate ticked higher on both headline and core measures: headline CPI jumped to 4.2% and Core CPI (CPI minus food and energy) to 3.0%, from 1.4% in January of this year for both measures.

The Economy:

Economists expect real GDP growth to finish 2021 at 7.5% (median forecast, 4Q/4Q). For 2022, the median forecast sees real GDP increasing by 3.1% (median forecast, 4Q/4Q). On a quarterly basis, respondents forecast 10.0% real GDP growth in 2Q21, lowering to 7.9% in 3Q21 and 5.6% in 4Q21 (Q/Q, annualized).

Additionally, 94% expect the long-term potential growth rate of over 2% 2%, with 82% stating this is unchanged from pre-COVID estimates.

When asked to list the top risks to the economic forecast, economists shared that additional fiscal stimulus, faster opening of U.S. economy, and larger consumer spending were upsides while lingering COVID restrictions and lockdowns, labor supply constraints, and higher inflation were downsides.

As of May 2021, the U.S. unemployment rate remained elevated at 5.8%, down from the April 2020 peak of 14.7% but still higher than historical levels averaging around 3.7% (2019 monthly average). Roundtable economists expect the unemployment rate to end 2021 at 5.2%, falling in 2022 to 4.0% (4Q average). Employment growth is expected to average 552,300 in 2021 and 283,700 in 2022.

Life After COVID:

Sixty five percent of respondents expect the labor force participation rate to return to the ~63% pre-COVID average beyond 2022, followed by 29%, expecting it in the second half of 2022. In terms of stimulus checks and enhanced unemployment benefits impacting the ability for companies to hire staff, 94% of respondents indicate that it is one of several factors.

In addition, 69% of respondents expect employees never to return to the office at pre-COVID levels, followed by 13% each that expect it in the second half of 2022 and 13% in first half of 2022. The key factors listed by respondents limiting a large-scale return to office include lack of childcare and closed schools, employees choosing to work at home, and lingering health concerns of contracting COVID-19.

Once a vaccine is distributed en masse, 44% of Roundtable economists expect consumers to approach high-density activities at increased but nowhere near pre-COVID levels while another 44% expect it to return to pre-COVID norms. When gauging long lasting or permanent negative impacts from changed behaviors on the heavily COVID-impacted activities, 71% of respondents selected both public transportation and airlines, followed by 57% indicating hotels. Additionally, 75% of respondents believe proof of vaccination should be required for airline travel, with 63% responding return to offices.

Monetary Policy:

Respondents indicated that should the Fed need to provide more policy accommodation, the top tool will be communication (100%), followed by 88% responding asset purchases/balance sheet. As to the efficiency of the Fed’s communication with markets around its timeline for shifting monetary policy, 47% of respondents indicated the communication is somewhat murky but decipherable, while 35% said it’s very clear.

Under the Federal Reserve’s new framework, including a “broad-based and inclusive” approach to full employment and an average 2% inflation target, all of respondents (100%) believe the Fed will hold rates lower than they would have historically under the old framework. 68% of economists expect the Fed will begin to lift its target range for the federal funds rate in 2023, followed by 21% expecting beyond 2023. The factors listed as most important to the Fed’s decision making were inflation pressure and inflation expectations, COVID impact on labor conditions, and financial conditions.

Expectations are for inflation to end 2021 at 3.8% for CPI and 2.9% for Core CPI, up from 1.2% and 1.6% respectively last year. 88% of respondents believe current inflation pressures are temporary/transitory, while 53% of Roundtable economists are somewhat confident the Fed can achieve its 2% average inflation target in a sustainable way (29% are very confident). Looking further out, 38% of respondents expect a 15% to 25% probability the U.S. will experience structurally higher inflation over the long run. The top factors to push long-term inflation higher include sustained breakdown of supply chains, reversal of globalization, and sustained higher deficits.

Interestingly, in light of the significant amount of government spending – looking at both approved and proposed spending packages – 87% of Roundtable economists view stagflation, as opposed to hyperinflation or deflation, as the bigger risk to the economy.

Macro Policy:

In terms of fiscal stimulus, 53% of respondents view the bigger risk to the economy is the government doing too much, therefore the economy overheats.

When considering additional stimulus, 38% respondents indicated government should not be considering the debt level (debt/GDP currently over 100%), noting the government needs to focus on stimulating the economy now; 23% responded they should consider the debt level as it could impede long-term growth or incite inflation.

35% of Roundtable economists estimate the total amount of additional stimulus in 2021 will be below $1 trillion and another 35% expect $1-2 trillion. As to current stimulus proposals on the table, respondents expect both the American Jobs Plan and the American Families Plan to pass at a much lower price tag (87% Jobs, 73% Families).

Focusing on relations with both the European Union and China and trade policy there, 29% of economists say it’s too early to tell whether U.S. will renew suspensions on tariffs with the EU and another 29% expect the suspension to be renewed expanding the list of goods; 57% of economists expect the U.S. to address perceived unfair trade practices by China by monitoring the situation, with 29% expecting tariffs on some goods to be removed, and in light of this, 36% of respondents expect a meaningful shift to domestic production, thereby reducing U.S. reliance on overseas production.

The press release can be found be here: https://www.sifma.org/resources/news/sifma-economic-roundtable-focuses-on-inflation-as-april-headline-cpi-jumped-to-4-2

The survey can be found here: https://www.sifma.org/resources/research/us-economic-survey-mid-year-2021/

*Note: This survey was populated between May 17 and June 3, 2021.

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The SIFMA Economic Advisory Roundtable brings together Chief U.S. Economists of 27 global and regional financial institutions. This semiannual survey compiles the median economic forecast of roundtable members, published prior to the upcoming Federal Open Market Committee (FOMC) meeting. We analyze economists’ expectations for: GDP, unemployment, inflation, interest rates, etc. We also review expectations for policy moves at the upcoming FOMC meeting and discuss key macroeconomic topics and how these factors impact monetary policy.

SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.