The nation’s job market should continue to see slow but steady improvement over the next year, according to the latest quarterly Bankrate Economic Indicator survey of top U.S. economists. And with that employment comeback, 90 percent of the experts say you can bet on a mid-2015 interest rate increase by the Federal Reserve.
“My hope is that continued real wage stagnation will cause the Federal Reserve to move very slowly to raise interest rates and, perhaps, reconsider raising them at all,” says survey respondent Seth Harris, a former deputy U.S. secretary of labor and now a distinguished scholar at the Cornell University Industrial & Labor Relations School.
A rate hike would be the first since 2006.
The economists have slightly downgraded their outlook for growth in the U.S. economy. But with Japan in recession and Europe risking contraction, the average prediction for annual growth in the U.S. gross domestic product is put at a fairly robust level of nearly 2.8 percent. They also see a smaller rise in Treasury yields over the coming four quarters compared with our earlier survey just three months ago.
As the Federal Reserve reverses its extraordinary measures aimed at guiding the economy, the experts outlined a number of possible shocks that could affect consumers and investors. These include “excessive financial market volatility” and a “correction in the equity markets.”
Still, the economists, on average, see a small possibility (14 percent) that the Fed will opt for yet another round of “quantitative easing,” asset purchases aimed at keeping the economy on a growth path.
So, don’t bet on QE4 coming from the Fed. “You would have to see a significant deterioration in the economy and the labor market,” says Scott Brown, chief economist at Raymond James.
What we found
- Unemployment: On average, members of the panel see the unemployment rate slipping to 5.5 percent one year from now, down from 5.8 percent in October. The range of opinions ran from a low of 5.1 percent to a high of 6.1 percent (which would mean higher unemployment) one year down the road.
- Hiring: Job growth over the next year should be respectable but not necessarily strong, historically speaking. On average, the economists expect employers to add nearly 219,000 jobs a month over the next year. That is virtually unchanged from the group’s outlook in our last survey, three months ago. The Labor Department said 214,000 jobs were added to payrolls in October.
- Economic growth: Our survey finds that economists look for the standard measure of growth, the gross domestic product, to be expanding at a 2.77 percent annual rate one year from now. The range of answers was fairly wide at between 2 to 4 percent. That’s down from an average of 2.95 percent in our survey last quarter.
- Federal Reserve: When panelists were asked when the Federal Reserve will begin raising interest rates again, their median response was June 2015. That’s the same response they provided last quarter. Seventeen of the 20 now say the rate hike will come sometime between January and September. Two of the economists think it will happen in 2016.
- Treasury yields: The yield on the 10-year Treasury note is, on average, expected to reach 3.17 percent one year from now. That’s down from the average outlook of 2.95 percent in the previous quarterly survey. The yield is used as a benchmark for interest rates charged to American consumers and businesses. The yield on the 10-year has recently been around 2.35 percent. So if the panelists are right, we’ll see borrowing costs rise a bit.
- Unintended consequences: With the Fed’s balance sheet topping $4 trillion, we asked the economists to name the greatest risk arising from the extraordinary measures the central bank has taken to lift the economy from the aftermath of the financial crisis. Nearly one-third of the economists cited concern about a sharper-than-expected pickup in inflation. One-quarter of our panel members cited the risk of increased financial market volatility or a stock market correction.
What it all means for you
How should you use the results of Bankrate’s survey? Here’s advice from Greg McBride, CFA, chief financial analyst at Bankrate.com:
- Continue preparing for the eventuality of higher short-term interest rates.
- Prospective homebuyers shouldn’t obsess about the prospect for higher mortgage rates in 2015 but instead should be shoring up their credit, boosting emergency savings and being careful to buy within their means.
- Savers and investors can expect slow improvement in savings yields, coupled with heightened volatility in the stock market.
Bankrate’s fourth-quarter 2014 survey of economists was conducted online Nov. 3-13. Survey requests were emailed to more than 50 economists nationwide, and responses were submitted voluntarily via a website. Responding were: Dean Baker, co-director, Center for Economic and Policy Research; Scott Brown, chief economist, Raymond James; David Crowe, chief economist, National Association of Home Builders; Michael Fratantoni, chief economist, Mortgage Bankers Association; Seth Harris, Distinguished Scholar, Cornell University Industrial & Labor Relations School; Curt Long, chief economist, National Association of Federal Credit Unions; Alan MacEachin, corporate economist, Navy Federal Credit Union; Joel Naroff, president, Naroff Economic Advisors; David Nice, economist, Mesirow Financial; Jim O’Sullivan, chief U.S. economist, High Frequency Economics; Lindsey Piegza, chief economist, Sterne Agee; William Poole, former president, Federal Reserve Bank of St. Louis, and senior fellow, Cato Institute; Lynn Reaser, chief economist, Point Loma Nazarene University; Jeff Rosen, chief economist, Briefing.com; John Silvia, chief economist, Wells Fargo; Sean Snaith, director, University of Central Florida Institute for Economic Competitiveness; Phillip Swagel, professor of international economic policy, University of Maryland School of Public Policy; David Wyss, adjunct professor of economics, Brown University; Lawrence Yun, chief economist, National Association of Realtors; Mark Zandi, chief economist, Moody’s Analytics.