Poll: U.S. economic
outlook unmoved so far after Trump win
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[December 08, 2016]
By Sumanta Dey and Anu Bararia
(Reuters) -
Donald
Trump's shock White House win has not altered U.S. economic forecasts
much, with economists in a Reuters poll expecting three rate rises by
the end of next year based on little follow-through on most of the
soon-to-be president's protectionist campaign promises.
The outlook for growth and inflation in a Reuters poll also remains
muted despite a Wall Street surge, underscoring a wide gap between how
the economy is expected to perform by analysts and what ebullient
financial markets are currently pricing in.
The dollar and 10-year Treasury yields have surged in the month since
Trump's victory, on trader expectations of an inflationary boost from
planned tax cuts and infrastructure spending, especially with the
economy close to full employment.
"The (Federal Reserve) is within striking distance of its inflation and
full employment mandate," said Dan Silver, economist at JPMorgan, who
expects an imminent hike followed by two more in 2017, adding: "The
risks of a faster normalization of policy, however, have increased."
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"If the U.S. administration enacts a substantial fiscal stimulus while
avoiding the more protectionist measures that sometimes have been
discussed, the increase in growth and inflation might push the Fed to
consider more than two hikes in 2017."
Several Fed officials have said recently a more expansive fiscal policy
would reinforce the case for quicker rate hikes, cautioning that the
Trump administration's economic plans should not be cast as if the
economy is in crisis.
The Reuters poll this week of over 120 economists, including all the 23
primary dealers -- large banks that do business directly with the Fed --
showed they unanimously expect the Fed to raise rates to 0.50-0.75
percent at its Dec. 13-14 meeting.
Fed funds futures are currently pricing in a 95 percent probability of a
move next week, converging with the consensus in Reuters polls of a
December hike that has held for half a year.
A follow-up increase is forecast for the second quarter of 2017, and
then again in the final three months of the year, taking the Fed funds
rate to a range of 1.00-1.25 percent, similar to Fed rate setters'
forecasts.
This steady view on rates comes despite a 2 percent rally in the dollar
<.DXY> since the election to a near 14-year high, which has tightened
financial conditions along with a 50 basis point rise in 10-year
Treasury yields.
A little over a third of economists said there would be a significant or
very significant risk to growth from a strong dollar next year.
LITTLE MORE THAN THREATS?
For most of his campaign, Trump vowed to recast U.S. trade and
immigration policy along protectionist lines by imposing steep tariffs
on Chinese imports, moving manufacturing jobs back to the country, while
also promising hefty tax cuts.
But analysts aren't buying that he will actually put up significant
barriers to trade.
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![](../images/120816pics/busine5.jpg)
Shoppers exit Macy's Herald Square store during early opening for
Black Friday sales in Manhattan, New York, U.S., November 24, 2016.
REUTERS/Andrew Kelly
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About two-thirds of the respondents who answered an extra question said
it is unlikely Trump would follow through on most of the protectionist
policies he spoke of during the campaign, which may help explain why
equity market analysts in a separate Reuters poll this week are so
optimistic. [EPOLL/WRAP]
"Our baseline now assumes President-elect Donald Trump delivers a fiscal
boost, but it does not come without a good dose of uncertainty
surrounding his trade policies," wrote Ellen Zentner of Morgan Stanley
in a recent note.
"We are assuming that trade protectionism goes little further than
threats, but it is enough to dampen business investment and tighten
financial conditions, providing a prolonged current of uncertainty in
2017."
The expected burst of government spending has, however, not brightened
prospects for growth, which is likely to meander between an annualized
pace of 2.1 to 2.3 percent in each quarter next year, after notching 2.2
percent in the current quarter.
Analysts such as those at FT Advisors, for example, who have
historically held some of the most bullish views, expect growth to peak
at only 3.0 percent in the second quarter.
The highest forecast across the poll horizon was 3.8 percent, well short
of the peak hit in the current cycle post the financial crisis of 5.6
percent in Oct-Dec 2009.
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Jim O'Sullivan of High Frequency Economics, the most accurate U.S.
forecaster in Reuters polls last year, predicts the best pace of growth
over the next year to be lower, at just 2.7 percent.
The Fed's preferred gauge of inflation, the Core PCE Price Index, is
also expected to lag the central bank's 2 percent target through all of
next year, averaging 1.8 percent in 2017, down from 1.9 percent in last
month's poll.
(Polling by Sarmista Sen and Vartika Sahu; Editing by Ross Finley/Jeremy
Gaunt)
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