Bankrate’s quarterly survey finds economists are increasingly upbeat about the outlook for the economy, compared with just three months ago. They anticipate that the unemployment rate will be down to 6 percent a year from now — a level not seen since before the 2008 financial crisis — and they’re split down the middle about the risk from inflation.
Along with stronger growth prospects, the nearly two dozen experts who participated also expect slightly higher interest rates ahead. That includes a rate hike that they believe the Federal Reserve will deliver next year.
What we found
- On average, the economists predict the economy will be growing at an annual rate of 3.05 percent 12 months from now, up from 2.8 percent in Bankrate’s similar survey three months ago.
- Job hunters might be in luck. On average, the economists responding to our survey expect the unemployment rate will fall to 6 percent by one year from now. An average of 209,000 jobs per month should be added to the economy over the next year.
- Most of the economists expect the nation’s jobless rate to bottom out either next year or in 2016. The majority believe the economy will achieve “full employment” in 2016. The Federal Reserve has defined that as joblessness of 5.2 percent to 5.6 percent.
- The Federal Reserve will likely raise rates in 2015. That’s according to all but two of the economists responding to our survey. That’s also the date cited by most members of the Federal Open Market Committee, the Fed’s policymaking panel.
- The economists say the biggest risks facing investors and consumers in the next 12 months include the high-flying stock market, global tensions and fiscal austerity in Washington.
What it all means for you
How should you use the results of Bankrate’s survey? Here’s some advice from Greg McBride, CFA, chief financial analyst at Bankrate.com:
- With the economists forecasting a 2015 start to interest rate increases, savers should stick with more accessible, or liquid, accounts such as savings and money market accounts, rather than certificates of deposit. That’s particularly true if you’re not sure when the money might be needed.
- If the Fed will indeed start raising rates next year, as our survey respondents predict, take defensive action now by paying down variable-rate credit card debt and refinancing away from adjustable mortgages and home equity lines of credit that become a greater liability as rates rise.
- With more than half of those polled citing the risk of inflation, revisit how your portfolio is positioned. Rebalance by selling off bonds that have performed well but would be hammered by inflation. Reallocate to things that will do better if inflation resurfaces, such as precious metals and real estate investment trusts.
- Protect your bond investments against both inflation and rising rates by favoring short-term over long-term, inflation-indexed over nominal bonds and floating-rate over fixed-rate bonds.
Economic risks in 1 word cloud
What economic risks were on the minds of the economists we surveyed? This word cloud shows the words they used most often when we asked them about the biggest risk facing investors and consumers in the next 12 months. The more frequently a word was used, the larger it appears.
Bankrate’s second-quarter survey of economists was conducted May 12-26 via email. Surveys were sent to more than 40 economists nationwide, and responses were submitted voluntarily. Responding were: Jim O’Sullivan, chief U.S. economist, High Frequency Economics; Mark Zandi, chief economist, Moody’s Analytics; Dean Baker, co-director, Center for Economic and Policy Research; David Nice, economist, Mesirow Financial; William Poole, former president, Federal Reserve Bank of St. Louis, and senior fellow, Cato Institute; Amy Crews Cutts, chief economist, Equifax; Phillip Swagel, professor of international economic policy, University of Maryland School of Public Policy; Nayantara Hensel, associate director, Federal Housing Finance Agency; Alan MacEachin, corporate economist, Navy Federal Credit Union; Robert Brusca, chief economist, FAO Economics; Lindsey Piegza, chief economist, Sterne Agee; Peter Morici, professor, University of Maryland Robert H. Smith School of Business; Lawrence Yun, chief economist, National Association of Realtors; John Silvia, chief economist, Wells Fargo; Lynn Reaser, chief economist, Point Loma Nazarene University; Scott Brown, chief economist, Raymond James; Joel Naroff, president, Naroff Economic Advisors; John Challenger, CEO, Challenger, Gray and Christmas; Jeff Rosen, chief economist, Briefing.com; John Canally, economic strategist, LPL Financial; William Ford, former president, Federal Reserve Bank of Atlanta; Robert Denk, assistant vice president, National Association of Home Builders.