U.S. Banking Group Anticipates Modest Growth in Economy in 2018


7/10/2017 4:50:00 PM

The Economic Advisory Committee of the American Bankers Association foresees Federal Reserve rate hikes in the next year.

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The U.S. economy continues to show signs of modest growth in 2018 according to the latest forecast by the Economic Advisory Committee panel comprised of 15 leading economists from investment banking and financial institutions.

“The forces that have sustained eight years of progress, such as low interest rates and improvements in labor markets, will continue into next year,” said Christopher Probyn, chairman of the group and managing director and chief economist of State Street Global Advisors. “Moreover, business and personal tax cuts, along with an increase in infrastructure spending, should boost the economy.”

The U.S. economy is already at or near full employment, according to the group, which believes that job growth will taper progressively through 2018. The national unemployment rate, currently 4.3 percent, is forecast to drift gently downward and could drop to 4.0 percent or lower before the end of 2018, the group said.

The panel expects the Fed to slowly raise interest rates without risk of dampening economic growth. More precisely, the ABA panelists predict there could be three separate interest rate hikes in 2018.  

“If economic growth surprises to the upside, then the Fed could move more aggressively,” Probyn said. “Conversely, if the recent slowdown in inflation persists, it could lead the Fed to pause, especially if wage growth stalls.”

A stall in consumer spending is an area of concern for the Fed. In May, ACA International reported on the Federal Reserve Bank of New York’s monthly U.S. Economy in a Snapshot, which showed that delayed tax refund disbursements influenced spending growth rates in the first quarter this year leading to flat consumer spending despite solid income growth and improvement in the labor market.

Furthermore, according to CNN Money, the International Monetary Fund cut its forecast for U.S. economic growth for this year to 2.1 percent from a previous estimate of 2.3 percent.

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