Members of the Securities Industry and Financial Markets Association¯²s Economic Advisory Roundtable expect the pace of U.S. economic growth to accelerate after the slow first quarter through the balance of the year and into 2008. In the mid-year survey, the median forecast anticipates GDP to grow at a below-trend pace of 2.2 percent in 2007, but increase to 2.8 percent in 2008 as the economy works through the housing sector correction. The combination of still expansionary fiscal policy, supportive but softening financial market conditions, tighter labor market conditions and a global economic expansion provides the backdrop for the sustained, modest economic growth. Consumer spending will continue to be an important driver with employment and personal income gains more than offsetting the effect of lower housing price trends. Capital spending by businesses is expected to pick up modestly in 2008 following a reduced growth rate in 2007.

The near-unanimous opinion of the Roundtable is that the FOMC will keep the target Fed funds rate at 5.25 percent at the upcoming June 27-28 meeting. Furthermore, a majority of the panelists expect the FOMC to leave the key rate unchanged for at least the balance of the year and into 2008. While not unanimous, the strong consensus is that the accompanying policy statement will continue to put an emphasis on inflation risk. The panelists agree that there will be little if any change in the policy statement from the May 9 statement. Some panelists did suggest that the statement may refer to concerns about the housing sector and the pace of the housing recovery and make mention of higher benchmark Treasury yields. A few panelists also commented that the risks of “extreme outlier scenarios” of heightened inflation or recession have declined.

Other Questions

• Housing Recovery Delayed Until 2008, Dominant Risk to Economic Growth Forecast
• Economic Advisory Roundtable Split on “Full Employment Rate” as a Measure of the Economy’s Capacity for Non-Inflationary Growth
• Corporate Profits Continue to Grow; Margins to Moderate
• Corporate Bond Credit Spreads Expected to Widen Modestly
• Equity Prices to Continue Ascent in 2nd Half of Year, Reach Record Territory

About the Report

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

Credits

SIFMA

• Staff Advisor: Steven Davidson

SIFMA Economic Advisory Roundtable 2008

• Chair: David H. Resler, Nomura Securities International, Inc
• Vice-Chair: Jim Glassman, J.P. Morgan Chase & Co.