The Economy:

Members of the Securities Industry and Financial Markets Association’s Economic Advisory Roundtable forecast that U.S. economic growth will grow at steady rate of 2.5 percent in 2011 and 3.1 percent in 2012. This outlook is slightly weaker than at end-year 2010, when the Roundtable predicted a growth rate of 2.6 percent in 2011. Concerns over fiscal policy, European sovereign debt, regulatory uncertainties, and high commodity prices remain significant risks to the outlook.

Monetary Policy:

The Roundtable was unanimous in its opinion that the Federal Open Market Committee (FOMC) would not change its current 0.0 to 0.25 percent target federal funds rate during 2011. The majority (approximately 85 percent) expected a rate hike in 2012, although the timing of the rate hike was evenly split among the first three quarters of 2012. The balance of respondents expected a rate hike in 2013. Respondents who did not put a date to rate hikes opined that the timing of future rate hikes was primarily dependent on improvement in payroll numbers and stable financial conditions, especially concerning inflation.

Interest Rates:

The Roundtable expected the FOMC to continue maintaining its 0.0 to 0.25 percent federal funds target rate throughout 2011. As of July 6, the end of the survey period, the 10-year U.S. Treasury yield was 3.16 percent; the median forecasts for 10-year Treasury rates in 2011 were 3.25 percent for September 2011, 3.5 percent in December 2011, 3.7 percent in March 2012, and 3.85 percent in June 2012. Survey respondents expected economic growth prospects to have the greatest impact on long-term Treasury yields in 2012, followed by inflationary expectations and, to a lesser extent, FOMC interest rate policy.

Financial Regulatory Reform:

The survey asked a number of questions about both governmental policy and other regulatory reform measures. Respondents were generally negative about the impact the Dodd-Frank Wall Street Reform and Consumer Protection Act would have on economic growth, availability of credit, and cost of credit to households and business over the next 18 months. Asked about the expected impact on households, over 75 percent expected a negative impact on credit availability and nearly 60 percent expected a negative impact on the cost of credit. The forecast for impact on the business sector was only slightly less negative, with 65 percent and 53 percent predicting a negative impact on the availability of credit and cost of credit, respectively.

Commodities

Oil prices, and more generally commodity prices, experienced a spike during the first six months of 2011, with oil rising over the $100 per barrel level for the first time since October 2008. Panelists placed a greater than 50 percent chance on oil prices remaining below the $100 per barrel range in 2011 , with an approximately 36 percent chance of oil prices moving into the $101 and $150 range, and a less than 10 percent chance of oil prices moving above the $150 per barrel range. The $101 to $150 per barrel scenario would have the probability-weighted estimated effect of reducing GDP growth by a little over half a percentage point, while the $150+ per barrel scenario would have the effect of reducing GDP growth by 1.7 percent. The most likely scenario – remaining below $100 per barrel – was predicted to boost GDP growth by half a percentage point.

The report also includes forecasts concerning economic growth, employment outlook, and oil prices, among other issues.

About the Report

A semiannual survey of SIFMA’s Economic Advisory Roundtable concerning the U.S. economic outlook and rates forecasts.

Credits

SIFMA

• Staff Advisor: Kyle Brandon

SIFMA Economic Advisory Roundtable 2011

• Chair: John Silvia, Wells Fargo