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.

While there is some consensus among the roundtable members on what Trump may enact, there is still quite a bit of uncertainty, especially around the timetable for any potential policy changes.

“We do think there will be more fiscal stimulus – tax cuts, corporate and individual; maybe a repatriation expected to be higher on the list; some infrastructure spending; [and] some greater defense spending,” Hoffman told media. “But trying to figure out exactly what the effective dates of that is still very much up in the air. Certainly the amount – if there are tax cuts – how big will they be or estimated to be? Will they take effect in 2017, will they be phased in?

When asked if Trump’s election changed the outlook on the direction of financial regulatory policy, respondents agreed unanimously. More than half of respondents (60%) expected Trump’s financial regulatory policy would raise GDP growth by up to 50 bps in 2017, if enacted, while a third of respondents expected no impact and the balance expected a negative impact of up to 50 bps.

One respondent noted, “Regulation costs over $1 trillion a year. Eliminating and simplifying some of it would be the equivalent of a massive tax cut.”

4. Interest Rates

When the survey was completed on Dec. 1, the 10-year U.S. Treasury yield was 2.45%. Looking at the roundtable survey, the median survey forecasts for 10-year Treasury rates were: 2.3% for December 2016, 2.4% for March 2017, 2.5% for June 2017, 2.55% for September 2017 and 2.68% for December 2017.

The majority of respondents (64%) expect the Treasury yield curve (federal funds-to-10-year Treasury yield spread) to flatten by mid-2017, with 29% expecting the curve to steepen and the remainder expecting the curve to remain the same.

The roundtable thinks the biggest factor to impact the Treasury yields in the first half of 2017 will be inflation and inflationary expectations, followed by FOMC interest rate policy.

One respondent noted that foreign bond yields could also affect long-term U.S. Treasury yields.

5. Risks to Growth

In the recent survey, respondents were asked to rank factors by their potential impact on U.S. economic growth in the first half of 2017. Business confidence was considered the most important factor impacting U.S. economic growth, followed by U.S. fiscal policy and private credit market conditions.

Respondents noted consumer strength and tariffs as additional factors potentially affecting growth.

SIFMA also finds that upside and downside risks to the growth forecasts were relatively uniform among respondents and focused on fiscal and trade policies.

According to the survey, fiscal stimulus, deregulation and tax reform were common themes among respondents on upside risks. On the downside, protectionist trade policy was a leading cause for concern, as were uncertainty over fiscal and other policies, such as restrictive immigration.

6. Oil Prices

Panelists placed a 12.5% chance on West Texas Intermediate (WTI) crude oil prices dropping to below $40 by end of the first half of 2017, a 42% chance of prices between $41 and $50 a barrel, a 37% chance of prices between $51 and $60, and the balance for prices rising to $61 or higher.

Hoffman does note that OPEC made its production cut decision late in the survey’s process.

“We don’t know how much of that was reflected in the forecast,” Hoffman told media.

Respondents estimated that the most likely scenario – oil prices remaining in the $41 and $50 per barrel range – would have no impact on economic growth, which is similar to the mid-year 2016 forecast.

According to the survey, only the two outer ranges were broadly predicted to have an impact on GDP growth: prices below $40 per barrel would raise GDP growth by 5 bps, while prices above $61 per barrel would lower growth by 10 bps.

Respondents estimated that WTI would settle at an equilibrium price of $65 per barrel three years from now, assuming continued moderate global growth.

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