The Securities Industry and Financial Markets Association’s (SIFMA) Economic Advisory Roundtable today unveiled its outlook for 2009 and 2010, forecasting the Federal Open Market Committee will not change its current 0.0 to 0.25 percent target federal funds rate.
“The general consensus of the Roundtable is that the U.S. economy will turn positive in the third quarter, although remain at a subpar pace until next spring,” said Kyle Brandon, managing director of research for SIFMA. “The U.S. economy remains afloat, although battered, with the passing of the financial market meltdown and the credit market freeze. This cautiously optimistic outlook is a result of the aggressive and unconventional central bank actions and the fiscal stimulus, which have somewhat alleviated the continuing housing sector weakness, tight credit markets, and widespread economic contraction.”
Interest Rates
Survey participants unanimously believe that the Federal Open Market Committee (FOMC) will not change its current 0.0 to 0.25 percent target Fed funds rate at this week’s meeting.
The Economy
The median forecast calls for gross domestic product (GDP) to fall 2.7 percent in 2009 on a year-over-year basis (-1.4 percent on a fourth quarter-to-fourth quarter basis). By individual quarter, respondents expect GDP to fall 2.0 percent in the second quarter on an annualized basis before recovering and growing at 0.8 and 1.9 percent annualized, respectively, in the third and fourth quarters. The economy’s GDP is forecast to grow 2.1 percent on a year-over-year basis in 2010 (2.9 percent on a fourth-quarter-to-fourth quarter basis), but this growth is not expected to be rapid enough to prevent unemployment from rising still higher.
Monetary Policy
When asked whether the expansion of the Fed’s balance sheet poses an inflationary risk, most commentators believed inflation to be a potential risk, but also acknowledged major counterbalancing trends such as significant economic slack and financial deleveraging. Many also had confidence that the Fed would be able to remove accommodation in a timely fashion and few seemed worried about a relapse caused by premature removal of accommodation. The majority believes that the concerns about near-term inflation risks are misplaced.
The report also includes forecasts concerning oil prices, fiscal policy, consumer spending and the unemployment rate, among other issues.
The full report can be found at: http://www.sifma.org/research/pdf/EconOutlook0609.pdf
