The Securities Industry and Financial Markets Association’s (SIFMA) Economic Advisory Roundtable today unveiled its outlook for Q4 2009 and 2010, forecasting the Federal Open Market Committee will not change its current 0.0 to 0.25 percent target federal funds rate at its December 15-16 meeting.
“While cautiously optimistic about the generally positive trend of most economic indicators, the economists were restrained in their forecasts and demurred from predicting the level of rebound one might normally expect after a severe recession.,” said Kyle Brandon, managing director of research for SIFMA. “The outlook warned of potential future challenges, particularly missteps in fiscal and monetary policies.”
Interest Rates
Survey participants unanimously believe that the Federal Open Market Committee (FOMC) will not change its current 0.0 to 0.25 percent target Fed funds rate at this week’s meeting.
The Economy
The median forecast calls for gross domestic product (GDP) to fall 2.5 percent in 2009 on a year-over-year basis (0.3 percent on a fourth quarter-to-fourth quarter basis). Full-year nonfarm payroll employment losses in 2009 were estimated to total 4.5 million jobs; while job recovery estimates for 2010 ranged widely, the median expectation was for a return to growth, albeit restrained, of 800,000 jobs. Survey respondents expected the full-year average unemployment rate to be 9.3 percent in 2009 and 10.1 percent in 2010.
Monetary Policy
Respondents were nearly unanimous in their opinion that the Federal Reserve’s expanded balance sheet did not pose a near-term inflationary risk. When asked to rank possible steps the Federal Reserve would take to reverse course, respondents cited reverse repos, with test operations totaling $1 billion as of December 14th, as the most likely first step by 80 percent of respondents. Other possible actions frequently mentioned by respondents were paying interest on reserves, directly selling assets back to the market or using a collateralized vehicle.
Transaction Tax
Respondents were also unanimous in their judgment that a securities transaction tax would have a negative impact on both the U.S. financial markets and economy.
The report also includes forecasts concerning oil prices, fiscal policy, and consumer spending, among other issues.
The full report can be found at: http://www.sifma.org/research/economic-research.shtml