Perspectives on the U.S. Economic Outlook

By Eric S. Rosengren

December 17, 2019

New York, NY

Forecasters Club of New York

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Takeaway: The economy is currently in a good place – having performed pretty much as professional forecasters expected, despite recent concerns about the risks presented by slower global growth and uncertainty about trade policy.

Excerpt: “The U.S. economy is quite solid, and barring an unexpected adverse shock, my view is that the economy is currently well positioned for the coming year. …Labor markets are strong, inflation is moving to target, and growth is likely to be somewhat above potential.”
Takeaway: An economic downturn is unlikely in 2020, given generally positive economic conditions and the continuation of accommodative monetary and fiscal policies, and assuming no significant negative shock.

Excerpt: “With both fiscal and monetary policy being accommodative, financial conditions supportive, and recent data positive, I agree with the surveyed professional forecasters that the likelihood of a recession in 2020 is relatively low. However, a low probability does not mean it cannot happen, and certainly a negative shock from abroad or a significant flare up in trade disputes could change the outlook significantly.”
Takeaway: Unemployment will likely fluctuate narrowly around its current rate of 3.5 percent in 2020, and inflation will be close to the Fed’s 2 percent target.

Excerpt: “In early 2019, core PCE inflation was lower than expected. However, most forecasters continue to believe that shortfall reflected temporary factors – and thus they expect the core PCE … to remain close to the Fed’s 2 percent target in 2020. My own forecast is quite similar. I expect that given the strong labor market, core PCE inflation should move in a narrow range around the 2 percent target.”
Takeaway: The economy has grown at close to a 2 percent annual rate over the past two quarters, as strength in households has offset weaknesses in business investment. That pattern is likely to continue, as consumer spending is bolstered by job creation and increases in personal income and wealth.

Excerpt: “Trends in the saving rate and household wealth (net worth) … also highlight why the consumer is well positioned to spend. … Plentiful jobs and growth in income have provided improvements in confidence and bode well for holiday sales and beyond.”
Takeaway: Barring a material change in the outlook, additional policy easing is likely unnecessary in the near term.

Excerpt: “Given that monetary policy works with lags, and Federal Reserve policymakers have already eased monetary policy three times in 2019, my view is that it is appropriate to take a patient approach to considering any policy changes, unless there is a material change to the outlook.”