What you need to know from WSJ Economic Forecasting Survey – Feb. 2018

The Wall Street Journal February 2018

Economic forecasting survey summary

What experts are predicting — and how that affects you.

Every month, The Wall Street Journal surveys some 60 economists to weigh in on major economic indicators with their forecasts for the next few years. Here’s the latest survey published early February 2018.

February 2018 survey predictions

In February 2018, 63 financial, business and academic economists threw their hats into the ring to predict the future of the US economy. Among these experts, most predict that the Federal Reserve will raise interest rates in June. Tax reform legislation, signed into law by President Donald Trump in December, gives the economists faith in the strength of the economy. The unemployment rate is expected to continue to decline, with the gross domestic product (GDP) predicted to grow further.

Here’s what the Journal‘s predictions mean for the economy and how they can affect your spending, investments and cost of living.

Federal funds rate

The federal funds rate refers to the interest rate that banks charge on lending to one another overnight. For the Federal Reserve, this rate is a way to control economic growth — particularly inflation, which ultimately affects every facet of the world’s economy, from the cost of living to the cost of doing business.

The majority of economists (98%) surveyed by the Journal are expecting the federal funds rate to increase in June 2018. The remaining 1.59% forecast that it will remain the same — a slight increase in economists from previous months’ predictions.

On December 13, 2017, the federal funds rate increased a quarter point, bringing it to a range of 1.25% to 1.50%. The median federal funds rate is now 1.38%.

Of the 98% of experts who expect a federal funds rate increase in June, they forecast an average rate of 1.84%. Mike Cosgrove of Econoclast predicts the highest rate predicted at 2.1%, while Lindsey Piegza of Stifel, Nicolaus and Company predicts the lowest rate at 1.38% — the current rate.

Why do 98% of economists expect the rate to increase?

Confidence in a federal funds rate increase indicates that experts expect a continued strengthening of the US economy. The current federal funds rate is low compared with the past, but it’s been climbing back since the financial crisis hit in 2008. Unemployment levels are expected to fall next year, meaning the job market might be able to withstand a rate rise.

So far this year, we haven’t seen a rise in the federal funds rate. The last rate rise in December 2017 marked the third that year and the fifth since the government cut the rate to nearly 0% during the financial crisis.

What does the federal funds rate rise mean for consumers?

The effects of the federal funds ripple out into many other economic factors. An increase in this rate means increased interest rates for savings accounts, auto loans, mortgages and credit cards.

This is good news for savers, who could see bigger returns on their balances. But it can be bad news for borrowers contending with higher interest charges on lending products.

How has the federal funds rate moved in the past?

Below, we track the federal funds rate over a 12-year period — from 2009 and projected to 2020 — against the actual federal funds rate and estimated rate based on the Journal‘s survey.

The range of these economists’ predictions grows wider as forecasts are projected further into the future. Predictions were very close to actual rate movements from 2009 to 2017. But from mid-2017 onward, forecasts didn’t always hit the mark.

Who are the most accurate economists for predicting the federal funds rate?

We analyzed the Journal‘s expert predictions for the past three years against actual rate movements. Using our results, we calculated the top three most accurate economists for the federal funds rate, along with their most recent predictions for June 2018.

Top three economists for federal funds rate

The federal funds rate increased last year to a range of 1.25% to 1.5% — resulting in a median of 1.38%. All three of the most accurate economists predict an increase for June 2018. Interestingly, they all expect to see the same rate: 1.88%.

Lewis Alexander

1.88% / +.50% ↑

Chief US economist
Nomura Securities International

Michael Carey

1.88% / +.50% ↑

Chief US economist
Credit Agricole CIB

Carl R. Tannenbaum

1.88% / +.50% ↑

Executive vice president, chief economist
The Northern Trust

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10-year note

The 10-year note is a bond that’s offered by the US Treasury for people to buy. Bonds come with different terms, but the 10-year note is the most commonly watched and commented on. Sold at auction, they indicate how confident investors are in the economy.

When you buy one of these notes from the government, it behaves much like a loan you’ve allowed the government to borrow from you. With this note, you gain fixed interest payments twice a year until the 10 years is up, after which you can then get your money back. These notes are an important indicator of the overall economy, used as a benchmark for banks to set other interest rates.

This month, all of our economists (100%) predict that interest on the 10-year note will increase by June 2018. The average rate today is 2.90%, which is a 0.14% increase from what the experts predicted in January. The highest prediction came from Edward Leamer and David Shulman of UCLA Anderson Forecast at 3.25%, while the lowest came from James F. Smith of Parsec Financial Management at 2.44%.

What does this mean for consumers?

When the 10-year note rate rises, so do interest rates on all longer-term loans, like 15-year fixed-rate mortgages. Rising mortgage rates can be good for bondholders, because it typically results in even bigger interest payments.

Our graph shows the 10-year note rate over the past few years alongside future predictions. We can see that after a recent downturn, it’s expected to start picking up again.

What do the most accurate economists in this category say?

We compared the Journal experts’ past predictions to the actual 10-year-note rate to calculate the most accurate economists in each category. Here are the top three most accurate economists we found, along with their most recent predictions for June 2018.

Top three economists for 10-year note

The actual 10-year note rate was at 2.41% in December 2017. All three of these economists predict an increase for June 2018.

Douglas G. Duncan

2.8% / +.39% ↑

Chief economist, senior vice president
Fannie Mae

John Lonski

2.65% / +.24%

Chief economist, managing director
Moody’s Investors Services

John Silvia

2.85% / +.44%

Chief economist, managing director
Wells Fargo & Co.

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Past predictions

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