The consensus of 16 chief economists from among the largest North American banks is that the economy will see inflation-adjusted GDP growth accelerating to 2.8 percent this year – the strongest pace since 2005. “We see the economy as fundamentally strong this year with little down drift in major sectors,” said Ellen Zentner, chair of the Economic Advisory Committee of the American Bankers Association and chief U.S. economist for Morgan Stanley. “Tax cuts and regulatory reform will help support continued growth in business investment.”
Yet a key factor in the group’s forecast for growth is the employment picture. The committee forecasted unemployment to drop to 3.6 percent by 2019 — a rate that likely would generate wage pressure, which could help drive inflation beyond the Fed’s expectations. “If inflation were to rise appreciably above the Fed’s 2 percent goal, particularly in a tight labor market, it would likely trigger a more aggressive monetary policy response,” Zentner said.
The group expects the Federal Reserve to continue edging the federal funds rate higher. Following three rate hikes in 2017 year, the consensus is for four total this year – with additional rate hikes in September and December – followed by three more hikes in 2019.
The committee sees persistent strength in the availability of bank credit, with delinquency and charge-off rates holding near historical lows. Bank consumer credit grew 4.2 percent last year and is forecast to grow 5.0 percent this year, while business credit rose 0.7 percent last year and is forecast to grow 3.0 percent in 2018.
The committee did not factor potential trade disputes into its forecast. “There were a wide range of opinions about the impact of potential trade actions, but there is no question that the committee believes lingering uncertainty threatens to dampen business investment,” said Zentner.