Members of the Securities Industry and Financial Markets Association’s Economic Advisory Roundtable expect the pace of U.S. economic growth to be subdued for full-year 2008 but begin to pick up in 2009. Housing sector weakness, tight financing conditions, rising commodity prices, aggressive central bank actions to support market liquidity, and the effect of fiscal stimulus provide the backdrop for the economic outlook.

The Roundtable was unanimous in its opinion that the Federal Open Market Committee (FOMC) will hold the target Fed funds rate unchanged at 2.00 percent at the upcoming June 25-26 meeting. Furthermore, the panelists do not expect the target rate to change until late this year or, more likely, next year. When the Federal Reserve does move, the strong, though not unanimous, view is that the next move will be an increase of 25 basis points. The panelists generally expect the June 25-26 meeting’s accompanying statement to continue the emphasis on economic growth risk but with an indication that the risk is diminishing.

THE ECONOMY The median forecast is for gross domestic product (GDP) growth of 1 1.6 percent for full-year 2008 and 1.9 percent in 2009.2 Growth is expected to remain anemic at 1.0 percent in the second quarter, pick up in the third quarter supported by the stimulus package rebate checks and then fall back in the fourth quarter as the effect of the rebates subsides. The survey panelists expect approximately 40 percent of the rebate to be spent, with the balance either saved or used to pay down debt.

INTEREST RATES As noted, the Roundtable’s unanimous view is that the Federal Reserve will maintain the current 2.00 percent target Fed funds rate at the upcoming June 25-26 meeting and the median forecast projects the Fed funds rate to begin rising in the latter half of next year.

Other Questions

• Elevated Energy Prices Dominant Risk to Economic Growth; Housing Weakness Present But Subsiding as Source of Risk
• Commodity Price Surge Demand Driven
• Housing Recovery Slated for 2009
• Expiration of ALl Bush Tax Cuts Would Slow Economy
• Divergent Opinions on Corporate Bond Credit Spreads
• Central Bank Actions Have Eased Credit Market Stress

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.