"In part this reflects the federal Reserve's dovish policy U-turn in January," said Survey Chair Gregory Daco, chief U.S. economist at Oxford Economics, presumably referring to the minutes of the January meeting of the Federal Open Market Committee. The survey was conducted from Feb. 22 to March 7, before the Fed's March 19-20 meeting.
The January minutes showed that officials favored ending the shrinking of the Fed's balance sheet and were uncertain about raising rates again in 2019. In March, Fed policymakers were even more dovish, indicating that they likely won't raise rates at all this year while slowing the drawdown of its balance sheet before ending the runoff in September.
A near majority of respondents anticipated only one more rate hike this year, but it's important to remember that they were surveyed before the Fed's latest policy announcement. Interestingly, 30% of respondents do not expect an inversion of the yield curve — between the 3-month Treasury bill and 10-year Treasury note — before the next recession. Almost every recession since 1955 has been preceded by an inverted yield curve, though the lag time before a recession can range from 6 months to 2 years, according to economists at the Federal Reserve Bank of San Francisco.
Other highlights of the survey include expectations for:
- Lower inflation: 2.1% in 2019 and 2020 for the GDP Price Index, down from 2.2% in 2018; CPI increasing 2.1% from Q4 2018 to Q4 2019, down from 2.4% forecast previously; and core PCE price index rising 2% Q4 2018 to Q4 2019, down from 2.1% forecast previously.
- Weaker corporate profits: median 4.2% growth projected in 2019, down from 4.6% forecast previously, and median 3.5% growth in 2020.
- Lower 10-year Treasury yield: 3% by year-end, down from 3.5% in previous forecast, with a wide range between 2.5% and 3.76% (The 10-year Treasury ended Friday, March 22, with a 2.4% yield).
- Slightly slower consumer spending growth of 2.6% in 2019, down from 2.7% forecast previously.
- Slightly higher unemployment rate in 2019: the median forecast has the jobless rate averaging 3.7% in 2019, up from 3.6% in the previous survey, with the rate rising to 3.8% in the first quarter and declining to 3.6% in the last two quarters.
- Moderate median payroll growth of 173,000 per month in 2019, versus a previous forecast or 166,000, and 127,000 in 2020
- Higher hourly earnings: The median forecast is for 3% growth in 2019 and 3.2% growth in 2010, up from an actual 2.7% gain in 2018.
- Wider federal budget deficit, growing to $960 billion in fiscal 2019 and $1.025 trillion in fiscal 2020 from an actual $779 billion in fiscal 2018.
- Increased U.S. trade deficit, growing from $914 billion in 2018 to $978 billion in 2019 and $1.018 trillion in 2020, reflecting a greater deceleration of export growth than import growth. NABE economists project that export growth, adjusted for inflation, will slow from 3.9% in 2018 to 2.6% in 2019, while real import growth slows from 4.6% in 2018 to 3.7% in 2019.
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