RCF Vice President Peter Bernstein is a member of the Philadelphia Fed’s Survey of Professional Forecasters. Below are his 2018Q3 forecasts and analysis.
The economy grew at a 4.1 percent rate in the second quarter of 2018 and at a 3.0 percent rate for the first half of 2018. While individual quarterly growth rates can be volatile there is clearly an upward trend in growth dating back at least two years. A key contributor to faster growth has been strong business investment spending supported by recent cuts in corporate taxes and more favorable treatment of depreciation. Solid job growth has pushed the unemployment rate below 4 percent and despite growing trade tensions exports grew solidly in the first half of 2018. All in all, the economy is on solid footing and we expect the good times to continue the rest of year and into 2019.
Nonetheless, there were some areas of concern which cause us to believe growth will eventually slow. The housing market seems to have stalled and housing has often been a harbinger of things to come. More important, inflation is on the rise so much so that all of the increase in worker’s hourly pay has been offset by increases in prices. Only last year the Federal Reserve was troubled because inflation remained below its 2 percent target. Now all measures of inflation exceed 2 percent, and several are on their way to 3 percent. As a result, we expect the Fed to continue to raise short-term interest rates throughout 2018 and 2019.
For the PDF version of this report please click here: RCF 2018Q3 Forecasts for the Philadelphia Federal Reserve Survey of Professional Forecasters