Key Takeaways

• 2023 real GDP growth estimate +0.5%, vs. +0.9% 2022 (median forecast, 4Q/4Q)
• 2023 unemployment rate estimate +4.1%, vs. +3.6% in 2022 (4Q average)
• 2023 inflation estimates
  • CPI/Core CPI +3.0%/+3.8%
  • PCE/Core PCE +3.1%/+3.5%

Setting the Scene

Where We Are

Monetary policy. Fiscal spending. Economic reopening post COVID. Supply chain disruptions. A war. That was already a lot for an economy to digest. Then we added on the regional bank turmoil and the debt ceiling debate (now resolved). It is no wonder the economy and inflation are where they stand today. We highlight where we are with inflation metrics (Y/Y change, as of April) and how this compares to peak levels. We also show the path back down to the Fed’s target of around 2%. We pay close attention to the Personal Consumption Expenditures Price Index (PCE), the preferred metric used by the Fed to set monetary policy.

• Consumer Price Index (CPI) +5.0%
  • Prior month +5.0%
  • Peak +8.9% in June 2022
  • Path to 2% = -3.0 pps
• Core CPI +5.5%
  • Prior month +5.6%
  • Peak +6.6% in September 2022
  • Path to 2% = -3.5 pps
• PCE +4.4%
  • Prior month +4.2%
  • Peak +7.0% in June 2022
  • Path to 2% = -2.4 pps
• Core PCE +4.7%
  • Prior month +4.6%
  • Peak +5.4% in February and March 2022
  • Path to 2% = -2.7 pps

How We Got Here

There are many different factors which drove the increase in inflation, not all of which can be impacted by monetary policy to bring levels back down to the Fed’s 2% target.

We recap the drivers of inflation:

• Fiscal spending: >$7 trillion since March 2020
  • COVID associated
  • Administration policies
  • Ukraine aid
• Other factors:
  • Post-COVID economic reopening
  • Supply chain disruptions (domestic issues, China’s zero COVID policy)
  • Russia/Ukraine war (impact on commodity prices)
• Monetary policy (not depicted graphically): $4.2 trillion added to the Fed’s balance sheet since March 2020
  • 0% interest rates
  • Asset purchases/balance sheet expansion

1H23 Survey Results Summary

Inflation. Rates. Recession. Inflation remains at historical highs – headline CPI +7.7% Y/Y as of October – and the path back down to normalized levels, around +2.0%, seems like a long road. Recession questions – timing, length – grow louder, and more CEOs are sounding cautious on the environment as we close out the year. The end game seems to be the question, for inflation, the economy, and the terminal interest rate.

Economic Forecasts

• 2023 GDP growth expected at +0.5% (median forecast, 4Q/4Q); 2024 expected at +1.7%
• 92% of economists expect the long-term potential GDP growth rate of 1.5-2%, with all stating this is unchanged in the last twelve months
• Unemployment rate forecasted to end 2023 at +4.1%, and increasing to +4.4% in 2024 (4Q average)
• CPI – expectation +3.0% to end 2023, +3.0% to end 2024 (2022 actual 7.1%)
• Core CPI – expectation +3.8% to end 2023, +2.6% to end 2024 (2022 actual 6.0%)
• PCE – expectation +3.1% to end 2023, +2.2% to end 2024 (2022 actual 5.7%)
• Core PCE – expectation +3.5% to end 2023, +2.3% to end 2024 (2022 actual 4.8%)

Inflation

• 0% of respondents expect inflation will not reach the Fed’s preferred 2% target until 2H24
• As to whether the Fed will tolerate an above 2% inflation level, respondents were evenly split between yes and no
• The higher level was estimated at 2.0-2.5%, 100.0% of respondents
• 5% of respondents expect a 15% to 25% probability the U.S. will experience structurally higher inflation over the longer run (defined as longer than three years from now)
• 8% of respondents believe we are not in a wage-price spiral
• 0% of respondents believe the U3 unemployment rate needs to increase to 4.0-4.5% to meaningfully impact inflation
• 9% of respondents believe inflation expectations are not currently unanchored

Fed Actions

• 9% of respondents expect the Fed to pause rate hikes in June
• 6% of respondents expect the peak rate will be 500-550 bps
• 6% of respondents expect the peak rate to be achieved by 2Q23
• 3% of respondents think the Fed should pause and assess the impact of earlier rates hikes
• 7% of respondents believe this pause should take place in 2Q23
• 4% of respondents expect the Fed to cut rates in 1Q24

Recession

• None of respondents believe the U.S. is already in a recession, 69.2% of respondents believe the U.S. will enter a recession
• If the U.S. enters a recession, 0% of respondents believe it will be mild
• If the U.S. enters a recession, 4% of respondents believe it will occur in 4Q23, 27.3% in 3Q23, 18.2% beyond 2024
• The majority of respondents (66.7%) are doubtful the Fed can navigate a soft-landing (achieve its 2% inflation target without causing a recession): 16.7% somewhat confident, 8.3% very confident, 8.3% not confident at all

Full Report

Continue reading for all survey results, more charts and a reference guide on the U.S. economic landscape.

 

About This Report

The SIFMA Economic Advisory Roundtable brings together Chief U.S. Economists of 27 global and regional financial institutions. This semiannual survey compiles the median economic forecast of Roundtable members, published prior to the upcoming Federal Open Market Committee (FOMC) meeting. We analyze economists’ expectations for: GDP, unemployment, inflation, interest rates, etc. We also review expectations for policy moves at the upcoming FOMC meeting and discuss key macroeconomic topics and how these factors impact monetary policy.

Note: The survey was populated between May 15 to 26.

Credits

SIFMA Economist Roundtable Chair

• Lindsey Piegza, Ph.D, Stifel Financial Corp.

SIFMA Economist Roundtable

• Michael Gapen, Bank of America
• Marc Giannoni, Barclays Capital 
• Nathaniel Karp, BBVA Compass 
• Mickey Levy, Berenberg
• Douglas Porter, BMO Financial
• Andrew Hollenhorst, Citigroup
• Nicholas Van Ness, Credit Agricole
• Nannette Hechler-Fayd’herbe, Credit Suisse
• Peter Hooper, Deutsche Bank Securities
• Christopher Low, FTN Financial
• Jan Hatzius, Goldman Sachs
• Michael Feroli, J.P. Morgan
• Thomas Mills, Jeffries
• Mark Zandi, Moody’s Analytics
• Ellen Zentner, Morgan Stanley
• Kevin Cummins, NatWest
• Lewis Alexander, Nomura
• Carl Tannenbaum, Northern Trust
• Augustine Faucher, PNC Financial
• Eugenio Alemán, Raymond James
• Stephen Gallagher, Societe Generale
• Jonathan Pingle, UBS Securities
• Jay Bryson, Wells Fargo Securities

SIFMA

• Katie Kolchin, CFA, Managing Director, Head of Research
• Justyna Podziemska
• Dan Song

Prior Surveys

• Report

  Economist Roundtable Flash Poll: 1Q23

• Report

  US Economic Survey, End-Year 2022