Economists Lower Growth Estimates Ahead of FOMC Meeting

SIFMA’s Economic Advisory Roundtable says the U.S. economy should grow 2.2% this year, a slower pace than the group’s earlier full-year estimate of 2.7%. Still, U.S. growth could hit 3.1% next year, the Securities Industry and Financial Markets Association adds.

“We believed we could recoup from weather-related losses” of economic growth earlier this year, explained Diane Swonk, chairwoman of the Roundtable, on a call with the press Tuesday.

“This will not happen because of intensifying geopolitical risks,” added Swonk, who is chief economist of Mesirow Financial in Chicago. She pointed to rising oil prices from the deteriorating situation in Iraq.

(SIFMA’s economic survey includes the views of some 20 economists; it was conducted between May 28 and June 10.)

Released one day before a meeting of the Federal Open Market Committee (FOMC), the SIFMA report notes that the Federal Reserve is likely to keep its current zero to 0.25% target federal funds rate through mid-2015. Half of respondents anticipate the first rate hike in Q2’15, while 40% say such a hike will come in the second half of 2015; the remaining 10% see it taking place in Q1’16.

Opinions diverged significantly on when the FOMC would begin shrinking the Federal Reserve’s balance sheet by curtailing reinvestment of proceeds from its asset holdings. There continues to be near unanimity, however, that the FOMC securities purchases will cease by the end of 2014.

In a separate report released Tuesday, LPL Financial (LPLA) economist John Canally said, “We continue to expect the Fed to trim QE by $10 billion per month this year and to remain on pace to exit QE by the end of 2014.”

Canally says the broker-dealer expects the FOMC to “err on the side of keeping rates lower for longer. Markets should expect that the Fed will be content with keeping its fed funds rate target near zero until key labor market indicators make significant progress toward ‘normal.’ ”

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