Members of the Securities Industry and Financial Markets Association’s Economic Advisory Roundtable forecast that U.S. economic growth will continue to improve in the fourth quarter of 2009 and into 2010. While cautiously optimistic about the generally positive trend of most economic indicators, the economists were restrained in their forecasts and demurred from predicting the level of rebound one might normally expect after a severe recession. The outlook warned of potential future challenges, particularly missteps in fiscal and monetary policies such as tax policy. Other concerns included the future path of oil prices, the global economy in general, and the recovery of private market confidence.

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 at the upcoming December 15-16 meeting. Respondents were divided on when the FOMC would begin raising rates: while nearly half expected the FOMC to begin raising rates by mid-2010, the remainder expected no rate hike until late 2010 or the beginning of 2011.2

THE ECONOMY The median forecast called for gross domestic product (GDP) to fall 2.5 percent in 2009 on a year-over-year basis, and by 0.3 percent on a fourth quarter-to-fourth quarter basis. 3 On a quarterly basis, respondents expected GDP to rise 3.0 percent in the fourth quarter on an annualized basis and to continue steadily at a similar pace throughout 2010.
While the economy was forecasted to grow 2.8 percent in GDP on a year-over-year basis in 2010, and 3.2 percent on a fourth quarter-to-fourth quarter basis, the growth was not expected to mitigate the unemployment rate, which was expected to continue to persist at an elevated rate throughout 2010.4 Full-year 2009 nonfarm payroll employment losses were estimated to total 4.5 million jobs;5 while job recovery estimates for 2010 ranged widely, the median expectation was for a return to growth, albeit restrained, of 800,000 jobs.6 Survey respondents expected the full-year average unemployment rate to be 9.3 percent in 2009 and 10.1 percent in 2010.7
Unsurprisingly, the median consumer spending forecast mirrored nonfarm payroll employment forecasts, with an estimate for a drop of 0.6 percent for full-year 2009 and a mild recovery to 2.0 percent in full-year 2010.8

INTEREST RATES As noted, the Roundtable expected the Federal Reserve to continue maintaining its 0.0 to 0.25 percent federal funds target rate at the upcoming December meeting and for some time to come. As of December 2, the end of the survey period, the 10-year U.S. Treasury yield was 3.32 percent, up 1 basis point (bps) from end-September and 21 bps from end-June. The median forecast for the December 2009 average 10-year Treasury note yield was 3.5 percent, rising to 3.7 percent in June and 4.0 percent at year-end 2010.13 Economic growth prospects and FOMC policy were cited as two of the most important drivers of the Treasury yields outlook, while inflation, inflationary expectations, and budget deficit trends were also identified as important influences.

Other Questions

• Monetary Policy: When the Great Unwind?
• Normalizing Private Credit Markets the Dominant Factor Promoting U.S. Growth
• Fiscal Policy: A Mixed Bag
• Sunset of Tax Cuts a Further Drag
• Increase in Saving: How Far, How Soon?
• When Will Housing Reach Bottom?
• Employment Outlook
• Oil Prices: Little Chance of Dramatic Change
• Support Programs: Generally Effective
• Securitization Financing: TALF to the Rescue?
• Securities Transaction Tax: A Very Bad Idea

About the Report

A quarterly 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 2009

• Chair: Jim Glassman, J.P. Morgan Chase & Co.
• Vice-Chair: John Silvia: Wells Fargo