US Economic Survey, End-Year 2022

Key Takeaways

  • 2022 GDP growth est. +0.3%, vs. +5.7% in 2021 (median forecast, 4Q/4Q)
  • 2022 unemployment rate est. 3.7%, vs. 5.4% in 2021 (4Q average)
  • 2022 inflation estimate 7.4%, vs. 5.0% in 2021 (Core CPI, 4Q/4Q)

Setting the Scene

Where We Are

Unless you are living at McMurdo research station in Antarctica, you most likely are discussing inflation on a daily basis. At levels not seen since the 1980s, people are feeling inflation everywhere. Markets are ebbing and flowing – mostly in the downward direction – based on inflation reports. And, importantly, the Fed is basing its monetary policy on inflation data.

The conversation has shifted from “are we at peak levels” to when will the Fed be comfortable that they are achieving their goals? And by goal, we mean reaching a 2% range on the PCE, the Fed’s preferred inflation measure and the one typically used to set monetary policy. While we will dig into inflation projections and the path back down to the Fed’s 2% target in our survey results later in this report, first we recap where we are, how we got here, and compare it to historical high inflation eras.

As to where we are, PCE remained elevated at 6.0% in October. This was down from the 7.0% peak in June but +4.0 pps to the target.

How We Got Here

Today’s inflation is not your parent’s inflation. Part of what is complicating monetary policy decision making is that today’s inflation has many moving pieces. There are many different factors which drove the increase in inflation, not all of which can be impacted by monetary policy. As such, we thought it would be interesting to recap the drivers of inflation:

  • Fiscal spending: >$7 trillion since March 2020
    • COVID associated
    • Administration policies
    • Ukraine aid
  • Other factors:
    • Post-COVID economic reopening
    • Supply chain disruptions
    • Russia/Ukraine war
  • Monetary policy (not depicted graphically): +$4.4 trillion added to the Fed’s balance sheet since March 2020
    • 0% interest rates
    • Asset purchases/balance sheet expansion

2H22 Survey Results Summary

Inflation. Rates. Recession. Inflation remains at historical highs – headline CPI +7.7% Y/Y as of October – and the path back down to normalized levels, around +2.0%, seems like a long road. Recession questions – timing, length – grow louder, and more CEOs are sounding cautious on the environment as we close out the year. The end game seems to be the question, for inflation, the economy, and the terminal interest rate.

Economic Forecasts
  • 2022 GDP growth expected at +0.3% (median forecast, 4Q/4Q); 2023 expected at -0.3%
  • 83% of economists expect the long-term potential GDP growth rate of 1.5-2%, with 64% stating this is unchanged from pre-COVID estimates
  • Unemployment rate forecasted to end 2022 at +3.7%, and increasing to +5.4% in 2023 (4Q average)
  • CPI – expectation +7.4% to end 2022, +3.1% to end 2023 (2021 actual 6.7%)
  • Core CPI – expectation +6.1% to end 2022, +3.3% to end 2023 (2021 actual 5.0%)
  • PCE – expectation +5.8% to end 2022, +2.9% to end 2023 (2021 actual 5.5%)
  • Core PCE – expectation +4.8% to end 2022, +2.9% to end 2023 (2021 actual 4.6%)
Inflation
  • 75% of respondents believe price pressures are at their peak – PCE estimated to end 2022 at +5.8% and end 2023 at +2.9% – but will remain elevated for some time, with 55% responding inflation will not reach the Fed’s preferred 2% target until beyond 2024
  • Ranking the factors having the biggest impact on the aggregate inflation rate in order, economists replied: (1) demand side, (2) supply side, and (3) the labor component
  • Ranking supply side inflation components, economists replied: domestic supply chain issues (port congestion, labor shortages), commodity price shocks (oil due to Russia/Ukraine war), and supply chain issues (China’s zero COVID policy)
  • Ranking demand side inflation components, economists replied: consumer spending on services, consumer spending on goods, and fiscal spending
  • Labor component: 80% of respondents believe we are not in a wage-price spiral, with 72% of respondents believing we have reached a peak in wage pressures
  • None of respondents believe inflation expectations are unanchored, and none of respondents expect inflation expectations will become unanchored
Rates
  • All of respondents expect the Fed to raise the target Federal Funds rate by 50 bps in December
  • 46% of respondents expect the peak Fed Funds rate will be 500-550 bps, with 92% of respondents expecting the peak rate to be achieved by mid 2023
  • 58% of respondents think the Fed should pause and assess the impact of earlier rates hikes, with 50% of respondents indicating this pause should take place in 2Q23
Recession
  • None of the respondents believe the U.S. is already in a recession, while 83% of respondents believe the U.S. will enter in a recession
  • If the U.S. enters a recession, 89% of respondents believe it will be mild and 60% of respondents believe it will occur in 1H23

Full Report

Continue reading for all survey results, more charts and a reference guide on the U.S. economic landscape.

 

About This Report

The SIFMA Economist 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.

Note: The survey was populated between November 11 to 25.

Credits

SIFMA Economic Advisory Roundtable Chair

  • Lindsey Piegza, Ph.D, Stifel Financial Corp.

SIFMA Economic Advisory Roundtable

  • Ethan Harris, Bank of America-Merrill Lynch
  • Marc Giannoni, Barclays Capital Inc.
  • Nathaniel Karp, BBVA Compass
  • Mickey Levy, Berenberg
  • Douglas Porter, BMO Financial Group
  • Andrew Hollenhorst, Citigroup
  • Nicholas Van Ness, Credit Agricole
  • Nannette Hechler-Fayd’herbe, Credit Suisse AG
  • Michael Moran, Daiwa Capital Markets America, Inc.
  • Peter Hooper, Deutsche Bank Securities Inc.
  • Christopher Low, FTN Financial
  • Jan Hatzius, Goldman Sachs & Co.
  • Michael Feroli, J.P. Morgan Chase & Co.
  • Aneta Markowska, Jefferies & Co., Inc.
  • Mark Zandi, Moody’s Analytics, Inc.
  • Ellen Zentner, Morgan Stanley & Co., Inc.
  • Troy Ludtka, Natixis
  • Kevin Cummins, NatWest Markets Securities, Inc.
  • Lewis Alexander, Nomura Securities International, Inc.
  • Carl Tannenbaum, Northern Trust
  • Augustine Faucher, PNC Financial Group
  • Eugenio Alemán, Raymond James & Associates, Inc.
  • Tom Porcelli, RBC Capital Markets, Inc.
  • Stephen Gallagher, Societe Generale Corporate and Investment Banking
  • Jonathan Pingle, UBS Investment Bank
  • Jay Bryson, Wells Fargo Securities, LLC

SIFMA

  • Katie Kolchin, CFA, Director of Research
  • Justyna Podziemska
  • Dan Song