SIFMA roundtable of economists: positive trends exit, but concerns on economic growth remain for 2010 and 2011
23 June 2010
Concerns were raised that the overall impact on economic growth would be negative, ultimately making credit more expensive and more difficult to acquire. One commentator suggested that “even if Congress gets it all right, financial regulatory reform will reduce credit availability and hurt growth.”
The Securities Industry and Financial Markets Association’s (SIFMA) Economic Advisory Roundtable today unveiled its outlook for the second half of 2010 and 2011, forecasting the Federal Open Market Committee will not change its current 0.0 to 0.25 percent target federal funds rate at its June 22-23 meeting.
“While our Roundtable sees a positive trend in most economic indicators, great uncertainty remains over our economic future,” said Kyle Brandon, managing director, director of research for SIFMA. “With the impact of pending financial regulatory reform, likely increases in tax rates, and a minefield of fiscal and monetary policy decisions looming, the outlook for growth strengthening in the near term remains cloudy.”
The Economy:
The median forecast called for gross domestic product (GDP) to rise 3.3 percent in 2010 on a year-over-year basis (3.2 percent on a fourth-quarter-to-fourth quarter basis). Full-year 2010 nonfarm payroll employment gains were estimated to total 1.3 million jobs; while estimates for 2011 ranged widely, the median expectation was for a somewhat stronger 2.3 million jobs. Survey respondents expect the full-year average unemployment rate to be 9.6 percent in 2010, an upward revision from the 9.4 percent unemployment rate expected for 2010 in the end-year 2009 survey, and the 8.9 percent expected in 2011.
The Roundtable panelists were restrained in their forecasts and were hesitant to predict the level of economic rebound. The respondents warned of future challenges to growth, particularly the impact of pending financial regulatory reform and potential missteps in monetary and fiscal policies.
Financial Regulatory Reform:
Senator Blanche Lincoln’s (D-AR) swaps push-out provision, and the prohibition of trust preferred securities as Tier 1 capital as proposed by Senator Susan Collins (R-ME) were cited by survey participants as having the greatest economic impact.
Interest Rates:
Survey participants were again unanimous in their opinion that the Federal Open Market Committee (FOMC) will not change its current 0.0 to 0.25 percent target Fed funds rate at this week’s meeting.
Monetary Policy:
Respondents were asked to consider the FOMC’s April discussion of strategies for normalizing the Fed’s expanded balance sheet. The FOMC debated the potential speed and breadth of agency debt and mortgage-backed securities sales, with the majority preferring to defer asset sales until after the first increase in the target Fed Funds rate.
Three quarters of survey respondents agreed with the Fed’s conclusion, with the remainder split between advocating an earlier start date and preferring to defer judgment on timing.
Taxes:
When asked about taxes, specifically the sunset of dividend and capital gains tax rate cuts and pending proposals from Congress and the Administration to address those rates, a significant majority of survey participants commented that these proposals will have a negative or severely negative impact on economic growth.
The report also includes forecasts concerning oil prices, the housing market, and credit market adjustments, among other issues.
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