SIFMA sees growth speeding up each quarter for the rest of the year.

The economy will continue to improve this year following a negative first quarter but not enough to inspire a Fed rate hike before September, according to the Securities Industry and Financial Markets Association’s latest economic outlook.

“There’s a pretty strong consensus that the beginning of the year was a fluke and things are picking up,” said Ethan Harris, chairman of SIFMA’s Economic Advisory Roundtable, on conference call following release of the outlook. He characterized the outlook, based on a survey of 20 economists from U.S. broker-dealers and banks, as “cautiously optimistic.”

Survey respondents were nearly unanimous in expecting that the Fed’s first rate hike in nine years will be a third-quarter event. “September is the most likely date,” said Harris, who is also the co-head of Global Economics Research at Bank of America Merrill Lynch.

“The Fed has made it pretty clear they really are ready to go if they just see better data,” said Harris. No change in policy is expected to be made at the Fed’s two-day policymaking meeting that began Tuesday.

The SIFMA Roundtable forecast 2.2% GDP growth for all of 2015, down from the 3% it forecast at the end of last year, and 2.8% for 2016. The downward revision for this year is due in large part to the 0.7% drop in first quarter growth, which Harris attributed to special factors including unusually cold weather, West Coast dock strikes and volatility in oil prices and the dollar.

Respondents expect growth will increase in each successive quarter this year, rising to 2.5% in the second quarter, 3% in the third and 3.1% in the fourth.

“The economy is already getting right back on track,” said Harris. Consumers are spending more because of “solid job growth and the beginning of wage growth and solid assets” in stocks and housing, and business investment is improving following a slowdown due uncertainty about the dollar and oil prices, said Harris. The roundtable expects business investment will grow 3% this year and 4.6% next year.

Payrolls are forecast to grow by about 200,000 per month for the rest of this year and next, while the unemployment rate falls to 5.4% this year — the rate was 5.5% in May — and to 4.9% in 2016.   Against this backdrop of stronger growth, the roundtable expects inflation will pick up as but not nearly enough to boost the core PCE deflator  — the Fed’s favorite inflation barometer, measuring personal consumption expenditures — to the Fed’s 2% inflation target. The core PCE deflator is forecast at 1.3% this year and 1.7% next year.  

As for long-term interest rates, which are closely tied to the outlook for inflation, the roundtable forecast the 10-year Treasury note rate at 2.2% in June, 2.3% in September and 2.5% in December. The 10-year rate is currently just under 2.33%.

Lower long-term rates and slightly higher short-term rates — once the Fed hikes — mean a flatter yield curve. Two-thirds of survey respondents expect the curve will flatten by year end. The 10-year rate is forecast to rise to 2.6% in March 2016 and 2.78% in June 2016.

As for the economic risks ahead, Harris said they were not “unusually high.” The biggest one domestically, said Harris, is a market overreaction to Fed rate hikes which could cause the recovery to stall. Other risks include a potential Greek exit from the Eurozone and uncertainties about the Chinese economy.

He personally gives “better than even odds” that the European Union and Greece will reach an agreement on debt payments at the last minute that will keep Greece in the Eurozone. But even negotiations ultimately fail and Greece exits the EU, Harris said he expects the ECB’s bond-buying program and other measures will “ring fence” the situation, limiting its spillover. Still, he noted, the risk “is not zero and investors have to pay close attention,” said Harris.

Asked about the potential risk from a Supreme Court decision that rejects subsidies for many Americans insured under Obamacare, Harris said the impact would depend on how quickly Congress comes up with a fix.  “I would assume that would create a very quick legislative response,” said Harris. “It’s very important Congress react quickly.”