2014Q4 Forecasts for the Philadelphia Federal Reserve Society

2014Q4 Forecasts for the Philadelphia Federal Reserve Society of Professional Forecasters

RCF Vice-President Peter Bernstein is a member of the Philadelphia Fed’s Society of Professional Forecasts.  Here are the 2014Q4 forecasts he submitted in November, along with a look at his 2014Q3 forecasts and recent historical data.

Positive Job Momentum to Drive Stronger Growth

The economy has been adding 200,000+ jobs each month through the first three quarters of 2014, with most of these jobs being full-time, indicating that the economic recovery is picking up speed.  Real GDP is projected to grow at a 3.5 percent annual rate over the next two years, with the unemployment rate falling below 5.5 percent by the end of 2015.   By then, the expectation is that the Federal Reserve will have increased the fed funds rate to 1.00 percent (from its current near-zero level) and with that, other interest rates will move upward as well.   The 10-year Treasury yield is projected to average 4.15 percent in 2016, about a point-and-a-half higher than its 2014 average.   Inflation is projected to remain low – in part because of falling oil prices – but by 2016 inflation is expected to rise above two percent.

One wild card is the projected rebound in housing construction and residential investment.   The expectation is that job gains and still low mortgage rates will lead to more home buying and home building.  In addition, the outlook for multi-unit residential construction is positive given stronger demand for rental properties.

RCF Economic Update and Forecast Summary – October 2014

Quick Looks

  • Ebola fears exacerbated concerns of a global slowdown causing world stock markets to drop and interest rates to fall
  • Nevertheless, the U.S. economy is performing well, with rising consumer spending supported by strong job numbers and declining gasoline prices
  • Non-Residential investment rebounded from a drop earlier in the year, but the residential-housing side of the market has lost steam of late
  • We expect growth in excess of 3 percent over the next 12 months, and think that by mid-2015, the Fed will begin the process of raising interest rates.  However, if growth falters, the Fed will be in no hurry to raise rates

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