SIFMA’s Economic Advisory Roundtable today released its economic outlook for the second half of 2012 and predictions for 2013, forecasting that the economy will grow at a rate of 2.1 percent in full-year 2012 and 2.1 percent in 2013.
“Our Roundtable maintains their forecast for moderate economic growth for 2012 and 2013, but warns about a number of headwinds that could affect that forecast,” said Kyle Brandon, managing director and director of research at SIFMA. “Concerns over the European debt crisis, the so-called “fiscal cliff” and regulatory uncertainty remain significant risks to the downside for the economy going forward.”
The median forecast called for gross domestic product (GDP) to rise 2.1 percent in 2012 on a year-over-year basis, and by 2.2 percent on a fourth quarter-to-fourth quarter basis. For 2013, the median forecast was 2.1 percent year-over-year; on a quarterly basis, the GDP growth rate was expected to fall in the first quarter of 2013 to an annualized 1.8 percent and rise to 2.3 percent in the second quarter.
Unemployment was expected to remain at elevated levels throughout 2012 and 2013, with levels on pace with those forecasted in the end-year 2011 report. Survey respondents expected the full-year average unemployment rate to drop slightly to 8.1 percent in 2012 (compared to 8.2 percent forecasted in the end-year 2011 report), declining to 7.8 percent in 2013.
Monetary Policy and Quantitative Easing
The Roundtable was unanimous in its opinion that the FOMC would not change its current 0.0 to 0.25 percent target federal funds rate range through 2013. Of those respondents that put a date to a rate hike, approximately half expected a rate hike in mid- to late-2014.
On the possibility of another round of quantitative easing by the Federal Reserve, the majority of respondents (65 percent) expected the Fed to conduct further quantitative easing (QE3). When asked what conditions would trigger further easing, respondents were generally in agreement that subpar GDP and weak job growth, rising deflationary risks, and potential contagion from Europe were likely primary triggers for a third round of quantitative easing.
The timing for QE3 was expected to be near-term, with nearly all respondents who anticipated further quantitative easing expecting an announcement at the June 20, 2012 FOMC meeting and action to be taken from June to September 2012. While a majority of respondents that anticipated QE3 expect the Fed to act through purchases of long-term securities such as Treasuries and agency mortgage-backed securities (MBS), a small minority (17 percent) expect the extension of ‘Operation Twist’ instead.
Falling Off a “Fiscal Cliff”?
All survey respondents opined that some attempt would be made by Congress to mitigate the “fiscal cliff”, with the majority expecting a temporary extension of the Bush era tax cuts. A few respondents expected either reductions in, or the outright elimination of, sequestering as well.
Survey respondents also commented that most, if not all four aspects of the “fiscal cliff” (expiring tax cuts, the debt ceiling, appropriations and sequestration) will be postponed. Respondents generally expected some form of a budget plan, similar to the framework put forth by Bowles-Simpson, or a gradual phase in of fiscal cuts.
Respondents predicted that congressional action is highly dependent on the November elections, and that the only action they might take is a short term postponement. Nearly all respondents opined that uncertainty over fiscal policy will continue to negatively impact GDP growth in 2013, split fairly evenly between those expecting a negative impact of up to 100 basis points and those expecting a negative impact of over 100 bps.
The full report can be found at the following link: http:/
kyle brandon, us federal reserve, congress, europe, gross domestic product, sifma, securities industry and financial markets association, quantitative easing, federal reserve system, managing director and director of research
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