The Economy:

Members of SIFMA’s Economic Advisory Roundtable forecast that the U.S. economy grew at 1.8 percent rate in full-year 2011 and will grow at a rate of 2.2 percent in 2012. This outlook is considerably weaker than at mid-year 2011, when the Roundtable predicted a growth rate of 2.5 percent in 2011 and 3.1 percent in 2012. Concerns over European sovereign debt and economic health dominate the outlook, with domestic politics, fiscal policy, oil prices and regulatory uncertainties remaining 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 earlier than mid-2013. The majority (75 percent) expected a rate hike in 2014, although the timing was more heavily weighted in the first half of the year. 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. A sustained rise in inflationary expectations, risk of European contagion and housing conditions were also noted as important factors.

Interest Rates:

As noted earlier, the Roundtable expected the FOMC to maintain its 0.0 to 0.25 percent federal funds target rate throughout 2012 and beyond. As of December 22, the end of the survey period, the 10-year U.S. Treasury yield was 1.97 percent; the median forecasts for 10-year Treasury rates in 2012 were 2.02 percent for March, 2.19 percent in June, 2.30 percent in September, and 2.47 percent in December. Survey respondents expected credit market risk aversion and economic growth prospects to have the greatest impact on long-term Treasury yields in 2012, distantly followed by FOMC interest rate policy and the budget deficit. Several respondents noted that their forecast assumed no financial blow up in the Euro area.

European Fallout:

The survey asked about the impact of European Union sovereign debt market conditions on respondents’ perception of risk in the U.S. credit markets. All of those who responded to this question agreed that there was increased risk in the U.S. credit markets due to conditions in Europe. Several panelists noted that the U.S. financial markets and economy were greatly exposed to the risk of contagion from a systemic event arising from Europe, and that the increased risk was largely derived from the pass through of financial market strains to the U.S. Respondents also noted that due to fears of contagion, U.S. financials’ credit spreads are wider than they would be otherwise.

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

About the Report

Credits

SIFMA

• Staff Advisor: Kyle Brandon

SIFMA Economic Advisory Roundtable 2011

• Chair: John Silvia, Wells Fargo