Economists at U.S. financial firms have grown more optimistic about the prospects for U.S. growth over the past six months and more convinced that the Federal Reserve will hike rates a total of four times this year rather than three.
Their median forecast for real GDP growth in 2018 is now 2.9% on a year-over-year basis, up from 2.5% at the end of last year, according to SIMFA’s survey of the chief U.S. economists at many global and regional firms. Growth is expected to retreat to 2.6% year-over-year in 2019.
Two-thirds of respondents expect three more Fed hikes this year, including one at this week’s Fed policy meeting, which would bring the total number of hikes to four this year — a forecast shared with only 17% of respondents in the year-end 2017 survey.
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“Fiscal policy was an important consideration in the upgraded [GDP] forecast,” said Michael Feroli, chief U.S. economist at JPMorgan Chase and chair of SIFMA’s Economic Advisory Roundtable, referring to primarily to the U.S. tax cuts that took effect this January. “We are now keeping a closer eye on monetary policy, which is generally expected to remain on a path of gradual tightening.”
Economists viewed labor market conditions as the dominant factor in future Fed decisions to raise interest rates, followed by indicators of inflation pressures and inflation expectations.
On the labor front, the outlook calls for continued improvement, with an average 3.9% unemployment rate for this year, compared to an expectation of 4% in the year-end 2017 survey, and dropping to 3.6% in 2019.
Economists expect employers will add 2.2 million workers to payrolls this year, up from 2.1 million in the previous survey, and 1.8 million workers in 2019.