The Securities Industry and Financial Markets Association’s (SIFMA) Economic Advisory Roundtable today unveiled its outlook for 2009, forecasting the Federal Open Market Committee will cut the target federal funds rate by 50 basis points, predicting continued economic contraction through mid-2009 and examining certain aspects of the Troubled Asset Relief Program (TARP).
“The general consensus of the Roundtable is that the U.S. economy will face its longest postwar recession, of approximately 18 months, before we see subdued growth in the second half of 2009,” said Kyle Brandon, managing director of research. “The financial market meltdown, the credit market freeze and the economic contraction have all hammered the economy in a period of uncertainty in part due to the political transition and expected regulatory overhaul. These events have so far overwhelmed the positive side of the ledger, which include falling commodity prices, aggressive central bank actions to support market liquidity and the effect of an anticipated fiscal stimulus.”
Interest Rates
Survey participants unanimously believe that the Federal Open Market Committee (FOMC) will cut the target Fed funds rate at this week’s meeting. The overwhelming majority are forecasting a cut of 50 basis points, while the remainder anticipate a cut of 25 basis points.
The Economy
The median forecast is for gross domestic product (GDP) to fall at an annualized rate of 4.2 percent in fourth quarter 2008, resulting in full-year 2008 growth of 1.3 percent (year-over-year basis). The economy is expected to continue to contract on a quarterly basis through mid-2009, with full-year 2009 GDP expected to fall 1.0 percent. This translates approximately to an 18-month recession beginning January 2008, somewhat longer than the 16 month duration of the two longest postwar recessions.
TARP
Most respondents agreed that a government program to purchase or insure troubled assets, the original stated purpose of TARP, would have a significant impact on bank balance sheets and, to a slightly lesser degree, on credit availability; two thirds of respondents characterized the purchase of troubled assets as important or very important to addressing the credit crisis. Over 90 percent of respondents identified price transparency as a critical factor to the health of the credit markets.
The report also includes forecasts concerning oil prices, monetary policy, consumer spending and the unemployment rate, among other issues.
Follow the link below to view the full report:
http://www.sifma.org/research/pdf/economic-outlook1208.pdf
