Consensus Forecasts of Financial Institutions

By Ellis, Dennis F. | The Journal of Business Forecasting Methods & Systems, Spring 2000 | Go to article overview

Consensus Forecasts of Financial Institutions


Ellis, Dennis F., The Journal of Business Forecasting Methods & Systems


Look for short-term rates to decline early in 2001. The average forecast ]is that long-term rates have peaked. The growth in real output should slow from growth rates set in the last two years. Consumer spending and business investment will help economic growth. Inflation will continue slightly above two percent. Look for future unemployment to remain low. Motor vehicle sales and housing starts will remain stable.

INTEREST RATES DOWN

Over the near term - the upcoming two quarters -short term rates are expected to rise. Moody's Investors Service economist, John Lonski, sees "two 25 basis point rate hikes by the end of August 2000." The consensus forecast is for the Federal Funds rate to rise during the last half of 2000. Nicolas Perna, of Perna Associates, feels the "Fed may have to hike interest rates much more than the 50 basis points we forecasted." However, looking forward into the first two quarters of 2001, there is a strong feeling that the federal funds rate will start to decline. There is also strong agreement that the Aaa Corporate Band

HIGHLIGHTS

Rate will decline over the upcoming four quarters. The expectation is for the M2 money supply to grow at an annual rate of 4.4 percent over the next four quarters.

SLOWER ECONOMIC GROWTH

Recent history has the economy growing above its long-term trend growth rate. Nicholas Perna, sees "lots of domestic risk." Indeed, the latest consensus projection is for slower economic growth. Over the next four quarters, real GDP is forecasted to grow by 2.8 percent, at an annual rate. The outlook is for the major sectors of the economy to add to this modest economic growth. Real Business Fixed Investment will grow by some 5.4 percent out to 2001-2. After adjusting for price increases, Personal Consumption Expenditures will move forward at a modest pace.

INFLATION REMAINS LOW

In the latest survey, there is strong agreement that inflation will remain moderate over the upcoming four quarters. The forecast is for consumer price increases to be in line with recent trends. …

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