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Industry Economists: “Slow and Steady” Growth Outlook for 2016

Will the U.S. economy continue to show signs of strengthening this year? A panel of leading financial industry economists suggests that with ongoing improvement in the jobs market and better than expected growth figures, there’s reason to be optimistic.

That’s according to the Securities Industry and Financial Markets Association (SIFMA) Economic Advisory Roundtable, a panel of 19 economists surveyed for their forecasts about where they think the economy is headed.

SIFMA surveyed the participating economists from member financial firms for their views and compiled the results in the End-Year 2015 Economic Outlook report published in December. The report reflects the median values of the individual submissions, with most members showing cautious optimism that modest but steady economic growth and a mending employment market are on the horizon.

“The theme of the year is that slow and steady wins the race,” said Ethan Harris, the SIFMA Roundtable chair and co-head of global economics research at Bank of America Merrill Lynch. Harris pointed toward a return to full employment and modest inflation as signs of “a normalizing economy.”

The Federal Reserve raised interest rates in December for the first time in nearly a decade. That move was a clear indication that officials believe the economy has turned a corner, allowing interest rates to begin to normalize after years of being maintained near zero.

Here are three key take-aways from the Outlook:

  • Steady growth. The pace of gross domestic product (GDP) growth, the standard measure of the strength of the economy, is expected to be 2.5 percent in 2016. That’s a bit stronger than 2.2 percent predicted in an earlier survey published this summer.
  • Improving jobs outlook. The panel expects the unemployment rate to drop to 4.7 percent in 2016, from 5.3 percent in 2015.
  • Interest rates rising-but slowly. Following the December rate hike, respondents expect the Fed to continue to slowly raise the Fed Funds target rate in 2016, but very slowly.

As with any forecast, there are risks that could result in lower-than-expected growth. Respondents noted that a broader slowdown in the global economy, interest rates rising too high and too fast, and volatility in oil prices as potential risks that could stymie the growth outlook. But as the economy continues to gradually regain its footing, the outlook for slow and steady improvement should persist.

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