Slower growth but no recession and slightly higher inflation are key expectations of SIMFA’s biannual survey of chief U.S. economists of SIFMA member firms.

Economists expect GDP growth will slip to 1.8% in 2020 from 2.2% on a fourth quarter over fourth quarter basis with the odds of recession at 25% in 2020, the same odds in SIFMA’s midyear economic survey.

U.S. trade policy is the key risk to the outlook on both the downside and upside, according to Ellen Zentner, chair of SIFMA’s Economic Advisory Roundtable and the chief U.S. economist at Morgan Stanley.

Eighty percent of respondents expect the U.S. and China will eventually agree on Phase 1 of a trade pact and 64% expect such an agreement could yield as much as 20 basis points of GDP growth — the same amount they say was lost this year as a result of the U.S.-China trade war. The negative impact has been concentrated on “externally exposed sectors” such as investment and exports rather than domestic sectors, according to Zentner, who held a conference call with reporters.

In addition to trade issues, global growth and U.S. political uncertainty are among the top risks economists see for 2020.

They expect the unemployment rate will rise slightly to 3.7% in 2020 from an expected 3.6% in 2019 (it fell to a 50-year low of 3.5% in September, which it repeated in November), while payroll growth slows to an average 139,000 per month in 2020, down 15% from 163,000 in 2019.

“Hiring continues to slow but the pace of layoffs hasn’t risen,” said Zentner.

Personal consumption growth, adjusted for inflation, is also expected to fall, to 2.1% in 2020 from 2.6% this year. But “consumption will hold up as long as the labor market holds up,” said Zentner.

Core PCE inflation, which excludes food and energy and is the Fed’s favorite inflation measure, is expected to rise to 2.1% next year from an expected 1.5% in 2019.

Despite the forecast for rising inflation, most SIFMA roundtable economists expect little or no change in monetary policy in 2020. By the fourth quarter they expect the federal funds rate will be near 1.62%, midpoint in its current range of 1.50% to 1.75%, and the 10-year Treasury note yielding 1.85%, up from 1.7% in the second quarter. (The 10-year Treasury yield is currently near 1.8%.)

— Check out SIFMA Economists Expect Stronger Growth, Higher Rates on ThinkAdvisor.