The Securities Industry and Financial Markets Association's Economic Advisory Roundtable forecasted that the U.S. economy will grow 1.6% in 2016, strengthening to 2.2% in 2017.
On Monday, SIFMA released its semiannual survey of the roundtable concerning the U.S. economic outlook and rates forecasts. Responses from the 22 members of the roundtable were collected between Nov. 11 and 20 – after the results of the presidential and congressional elections.
"While there are many fiscal and trade policies to be determined in the Trump administration, the SIFMA panel expect a break in the fiscal logjam toward stimulus and the release of business 'animal spirits' from their regulatory cages will accelerate economic growth in 2017 with potential skewed to the upside," Stuart Hoffmann, senior vice president and chief economist of PNC Financial Services Group and chairman of the roundtable, said in a statement.
The current outlook for 2016 and 2017 is slightly weaker than the roundtable's midyear prediction, although the range of the 2017 forecast is wider and skewed more to the upside.
"This forecast maybe partly begins to reflect people's expectations of fiscal and trade policies under the Trump administration, but probably does not fully reflect that in terms of the median of the forecast," Hoffman said during a conference call with media.
Hoffman thinks people are already trying to build into their macro forecast some anticipated fiscal policy and perhaps trade policy moves, although he added that "we know it's very early."
1. The Economy
According to the survey, respondents expect real GDP to grow by 2.2% in the fourth quarter of 2016 on an annualized basis, falling to 2% in the first quarter of 2017 before rising back to 2.2% by the end of 2017. This is slightly weaker than the 2.3% forecast in the midyear survey.
"There was and remains a strong consensus that real GDP growth is going to pick up," Hoffman said.
Employment is expected to continue to improve, although on a slightly weaker basis than expected in the midyear survey. Survey respondents predict the unemployment rate will fall from an average of 4.9% in 2016 to 4.7% in 2017. Employers are expected to add 2.2 million workers to their payrolls in 2016 and 1.9 million in 2017.
The forecast for "headline" inflation, measured by the personal consumption expenditures (PCE) chain price index, was 1.1% for 2016, rising to 1.9% in 2017.
Economic slack and unemployment remained the main factors cited in the core inflation outlooks, followed by the strength of the U.S. dollar.
One respondent noted that the "soft global economy and strong dollar should limit pressure from commodities," while a few respondents continued to note housing costs remained a concern.
(Read last year's predictions by SIFMA: 6 Economic Predictions for 2016 and Beyond) 2. Monetary Policy
All but one respondent expect the Federal Open Market Committee to hike the Federal Reserve's target rate range at its Tuesday and Wednesday meeting, according to the survey.
SIFMA finds that the roundtable's rate hike expectations were not affected by the results of the presidential election, although a handful of members admitted they did wait to see how the markets reacted.
Respondents were generally uniform on the number of rate hikes they expect in 2017, with 75% of respondents forecasting two additional rate hikes in 2017, 20% expecting only one rate hike and the remainder expecting three.
According to the survey respondents, the most important factor in the FOMC's decision to raise rates is labor market conditions, followed by inflation or inflationary expectations. One respondent noted that a possible fiscal stimulus might play a factor, according to SIFMA.
A couple of respondents noted that the composition of the Board of Governors would be influential: "[President] Trump will pick as many as five Fed governors by the end of 2018."
3. Impact of Presidential Election
While 94% of respondents agreed that the election of Donald Trump increased fiscal policy uncertainty, when asked about the potential impact on 2017 GDP estimates, nearly two-thirds (63%) of respondents estimated an upward impact of up to 25 basis points, 19% estimated an upward impact of greater than 25 bps and 13% estimated a downward impact of up to 25 bps.
When asked about which policies have the greatest chance of being enacted, respondents noted corporate and personal tax policies, followed by infrastructure spending and restrictions on immigration. Respondents also considered the repeal of the Affordable Care Act, regulatory reform, repatriation, tariffs and energy policy changes to be likely.
