Economic growth will hit 2.8 percent for 2018, the fastest rate of growth in the current expansion, the American Bankers Association Economic Advisory Committee said today. The committee is forecasting growth to continue into 2020; after June 2019, it would become the longest post-World War II U.S. expansion on record.
“We see the economy as fundamentally strong this year with little down drift in major sectors,” said EAC Chairman Ellen Zentner, chief U.S. economist at Morgan Stanley. “Tax cuts and regulatory reform will help support continued growth in business investment.” She added that the EAC expects economic growth to slow in 2019, with 2.2 percent growth projected for the year. “The slowing will occur as the tax impact begins to fade, fiscal spending moderates and the Fed continues to raise short-term interest rates,” she said.
The EAC — which is made up of 16 chief economists at some of the nation’s largest banks — said that it expects to see the national unemployment rate fall to 3.6 percent by the middle of 2019. The committee said indicators confirmed its view that the Federal Open Market Committee will continue to act gradually to normalize interest rates, with four hikes projected this year and three in 2019. However, should wage growth and inflation pick up in response to the low unemployment figures, “it would likely trigger a more aggressive monetary policy response,” Zentner said.
The EAC also discussed the downside risk of uncertainty from trade policy, although it did not incorporate a trade war into its projections. “There were a wide range of opinions about the impact of potential trade actions, but there is no question that the committee believes lingering uncertainty threatens to dampen business investment,” said Zentner. “Supply chain disruptions and other secondary effects such as tightening of financial conditions could have a cumulative impact that would adversely affect economic growth.”