05, 2019 / 03:28PM / By SIFMA Roundtable / Header Image Credit: Sifma/ Pinterest
Today, SIFMA unveiled the
results of its biannual survey of the chief U.S. economists of many of SIFMA's global and
Compared with the June survey,
the economists surveyed increased their GDP growth estimates by 0.05% for 2019
to a median forecast of 2.2%, on a fourth quarter over fourth quarter basis.
For 2020, however, the median forecast was lowered by 0.1 percentage points to
1.8%, on a fourth quarter over fourth quarter basis.
"Despite the markdown in
2020 GDP growth, the economy is still expected to expand at a moderate pace," said Ellen Zentner, a Managing Director and Chief U.S. Economist for Morgan
Stanley, and Chair of SIFMA's Economic Advisory Roundtable. "U.S. trade
policy, business confidence in the U.S., and private credit market conditions
were among the most important considerations in the forecast change. When
gauging risks to the outlook, it is of no surprise that trade, global growth
and U.S. political uncertainty appeared among the top risks â€“ both to the up
and downside." The 12-month probability of recession remained the same at
25% but decreased slightly to 40.0% over the next 24 months.
Economists expect real personal
consumption growth to come in at 2.6% at the end of 2019, then slow to its
longer-run trend around 2.1% in 2020. This is despite an expected increase in
average hourly earnings to 3.1% in 2019 and 3.2% in 2020, which implies a
rising rate of saving.
On the labor side, economists
expect the unemployment rate to tick up slightly to 3.7% in 2020, after an
expected 0.2% decline in 2019 to 3.6%. Employment growth is expected to slow
further in 2020 to 139,000, after an expected decline to 163,000 in 2019 from
223,000 in 2018. In terms of inflation, as measured by the PCE deflator,
analysts expect it to increase to 2.1% in 2020 from an expected 1.5% to end
50% of respondents believe the
Fed's next rates move will be up, while 44% believe it will be down and 6% see
the Fed on hold for the foreseeable future. This stands in contrast to the 65%
down and 35% up in our mid-year survey, reflecting increased optimism among
If the next move is up, 88% of
respondents expect the Fed will move after 2020. If the next move is down, 43%
of respondents expect the Fed will move in 2Q20, followed by 29% for both 1Q20
and 4Q19. Respondents believe the Fed's terminal rate in this cycle will be
2.1%, which is down from 2.4% for our mid-year survey and likely reflects some
marking-to-market for cuts delivered thus far.
Similar to our mid-year survey,
inflation considerations ranked highest among factors in the Fed's decision to
raise rates, followed by labor market conditions. Labor market conditions were
also at the top of the list of the most important decisions for the Fed to cut
rates, followed by global economic developments and inflation considerations.
Interest Rates and Credit
Respondents expect little
movement in key rates, with Fed Funds falling to 1.625% through 1Q20 and
further to 1.620% by 4Q20. 2-Year UST is forecasted to fluctuate in 2019 and
2020 between 1.563% and 1.600%, while 10-Year UST is expected to climb from
1.715% in 2Q20 to 1.850% in 4Q20. Finally, respondents expect the 30-Year
Mortgage to climb from 3.655% in 1Q20 to 3.775% in 4Q20.
Respondents also gave
expectations for various yield spreads, including 70% expecting the yield curve
to steepen; 60% expecting the TED spread to remain about the same; 50% expecting
the spread of IG corporates bonds to U.S. Treasury to widen; and 69% expecting
the spread of HY corporates bonds to U.S. Treasury to widen.
All respondents expect the
USMCA to be passed, with 43% expecting the timing to be 1H20, followed by 29%
expecting passage in 4Q19. If/when passed, 64% of respondents expect the USMCA
to have no impact to GDP growth, versus 54% in the mid-year survey.
50% of respondents believe
tariffs on products from China (and elsewhere) have impacted 2019 GDP growth by
0-20 bps, versus 80% in the mid-year survey, followed by 43% building in lower
GDP growth by greater than 20 bps. As to the impact on prices, 71% of
respondents believe tariffs will have raised prices by 0-20 bps, versus 69% in
the mid-year survey, followed by 21% responding no impact.
With the US and China agreeing
in principle on Phase 1 of a full trade agreement, 57% of respondents noted the
Phase 1 deal will prevent future tariffs, while 36% responded there is not
enough information to forecast. 80% of respondents expect the U.S. and China
will eventually agree formerly on Phase 1.
Regardless of type, 43% expect
the deal to be finalized in 1Q20. If/when passed, 64% of respondents expect a
U.S./China trade deal to impact GDP growth by raising the forecast from 0-20
bps, followed by 21% expecting no impact on GDP growth.
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