Economic Outlook - The Credit Research Foundation · •The housing market is anticipated to...

William Strauss, Senior Economist and Economic AdvisorFederal Reserve Bank of Chicago

1

Economic Outlook

William Strauss

Senior Economist

and Economic Advisor

Federal Reserve Bank of Chicago

CRF Credit & A/R ForumSan Antonio, TXMarch 20, 2018

•The outlook is for the U.S. economy to expand at a

pace around trend through 2020

What I said last October

•Employment growth is expected to slow with the

unemployment rate remaining below the natural rate

•Inflation is forecast to rise to the Fed’s inflation target this year

•Manufacturing output is expected to increase at a rate

below its trend in 2018

•The housing market is anticipated to continue to improve

at a modest pace through 2018

•Vehicle sales are anticipated to edge lower in 2018


2

GDP expanded by 2.5% over the past year

‐10

‐8

‐6

‐4

‐2

0

2

4

6

8

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Real gross domestic product

percent

Quarterly change (saar)

Percent change from a year earlier

‐5.0

‐4.0

‐3.0

‐2.0

‐1.0

0.0

1.0

2.0

1990'91 '92 '93 '94 '95 '96 '97'98 '99 '00 '01 '02 '03 '04'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16'17 '18

Monthly

Chicago Fed National Activity Index

Three month average

The Chicago Fed National Activity Index 3-monthis just above zero


3

The real value of the stock market is very high

50

100

150

200

250

300

350

400

450

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Real S&P 500 stock indexIndex: 1990 = 100

The Federal Open Market Committee (FOMC) expectsGDP to grow somewhat above trend this year

and then around trend in 2019 and 2020

‐5

‐4

‐3

‐2

‐1

0

1

2

3

4

5

6

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20


percent change from a year earlier

FOMC

FOMC Central Tendency (December 2017)

2018 2.2 – 2.62019 1.9 – 2.32020 1.7 – 2.0

Longer run 1.8 – 1.9


4

Compared with the December FOMC view,the March Blue Chip Forecast calls for stronger growth

for this year and next year

‐10

‐8

‐6

‐4

‐2

0

2

4

6

8

2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19


percent


Percent change from a year earlier Q4‐2017

Blue Chip GDP Forecast

Actual Forecast 2017 208 20192.5 2.7 2.3

95

100

105

110

115

120

125

130

135

140

95

100

105

110

115

120

125

130

135

140

‐8 ‐6 ‐4 ‐2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34

Business cycle recovery pathindex ‐ business cycle trough = 100

1981‐82

2008‐09

1974‐75

quarters before trough quarters after trough

The path of the current recovery is restrainedcompared with past deep recession recovery cycles

average annualized growth: 4.3%




5

The probability of recession in the next quarter has eased

0

10

20

30

40

50

60

70

80

90

100

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Probablility of a recession ‐ one quarters ahead (Survey of Professional Forecasters)percent

The same is true for the chances of a recessionover the next two quarters

0

10

20

30

40

50

60

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Probablility of a recession ‐ two quarters ahead (Survey of Professional Forecasters)percent


6

The index of leading indicators continues to rise

0

20

40

60

80

100

120

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Composite Index of 10 Leading IndicatorsIndex (2016=100)

Household employment has on average been 8.5 million more than establishment employment

50

75

100

125

150

175

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Employment

mil lions

Establishment employment

Household employment


7

Household and establishment employment hasbeen growing at roughly the same rate

and the growth rates have a correlation of 92.3%

‐6

‐4

‐2

0

2

4

6

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Employment

mil lions

Establishment employment

Household employment

‐8

‐6

‐4

‐2

0

2

4

6

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Total employment

percent

Monthly change (saar)


Employment increased by over 2.2 million jobsover the past 12 months

8.7 million workers lost their jobs,6.3% of the employed


8

U.S. population growth has continued to slow with immigration growth matching native born growth

0.0

0.5

1.0

1.5

2.0

2.5

1950 '60 '70 '80 '90 '00 '10

Population growthpercent

native births

population

immigration

The prime working age population is rising slower than the overall adult population growth due to extended lifespans

0.0

0.5

1.0

1.5

2.0

2.5

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Population growth (16 and over)percent

16 and over

"Prime Workforce" 16‐64


9

3

4

5

6

7

8

9

10

11

1990'91 '92 '93 '94 '95 '96 '97'98 '99 '00 '01 '02 '03 '04'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16'17 '18

Unemployment ratepercent

The unemployment rate has fallen to 4.1%

Employment

Show chart of unemployment rate

Feb 2018 Rate

1.4

2.0

4.1

4.4

5.1

8.2

Alternate Measures of Labor Utilization


10

All measurements of the labor unemploymentcontinue to move lower

0

2

4

6

8

10

12

14

16

18

1994 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Unemploymentrate

percent

U‐3

U‐6

U‐5

U‐4

3

4

5

6

7

8

9

10

11

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Unemployment ratepercent

FOMC

The FOMC forecasts that the unemployment ratewill be below the natural rate through 2020


2018 3.7 – 4.02019 3.6 – 4.02020 3.6 – 4.2



11

The March Blue Chip Forecast calls for a lower unemployment rate than the December FOMC forecast

for this year and 2019

0

2

4

6

8

10

2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Unemployment rate

percent

Unemployment rate

percent

Q4‐2017

Blue Chip Forecast

After falling to lowest level since 1977, the labor force participation rate has been ticking higher

58

59

60

61

62

63

64

65

66

67

68

1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Labor force participation ratepercent


12

Civilian Labor Force Participation Rateand Population Share 16 and Older

by Age Category, United States, 2007 and 2017

Labor Force Participation Rate (%) Population Share (%)Change Change

2017 2007 ‘07-’17 2017 2007 ‘07-’17Population16 and older 62.9 66.1 -3.2 100.0 100.0 0.0

16 to 24 55.5 59.4 -3.9 15.1 16.1 -1.125 to 34 82.1 83.3 -1.2 17.1 17.1 -0.135 to 44 82.7 83.8 -1.1 15.6 18.3 -2.745 to 54 80.3 82.0 -1.7 16.6 18.8 -2.255 to 64 64.5 63.8 0.7 16.2 14.0 2.265 plus 19.3 16.0 3.3 18.8 15.6 3.2

Most of the decline in the participation rateshas come from the youth

0

10

20

30

40

50

60

70

80

90

1950 '60 '70 '80 '90 '00 '10

55‐64

Labor force participation rate by age groupspercent

16‐19

45‐54

35‐44

25‐34 20‐24

75+

70‐74

65‐69


13

Wages and benefit costs continue to increaseat a very slow rate,

although it may finally be picking up some its pace

0

1

2

3

4

5

6

7

8

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Employment cost indexpercent change from year ago

benefit costs

wages and salaries

There is a very strong correlation between 9-month lead NFIB: planning to raise compensation and

Employment Cost Index: wages and salaries

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0

5

10

15

20

25

1986 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Empolyment cost index ‐ wages and salaries and

NFIB: Companies planning to raise wages and salaries

% of frims

ECI: wages and salaries(private industry workers) ‐ right scale

NFIB: Companies planning to raise worker compensation(9 month lead) ‐ left scale

% y/y

Correlation = 0.85


14

Education matters

‐4

‐3

‐2

‐1

0

1

2

3

4

1992 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Employment change from a year earlier (25 years or older)

mil lions

high school graduate or less than high school diploma (32.7%)

More than high school degree (67.3%)

percentages in parenthesis are the share of total workers 25 years or older in 2017

Education matters

‐10

‐5

0

5

10

15

20

25

30

35

40

45

1992 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Employment change from January 1992 (25 years or older)

mil lions

high school graduate or less than high school diploma (32.7%)

More than high school degree (67.3%)

percentages in parenthesis are the share of total workers 25 years or older in 2017


15

Education matters

32

34

36

38

40

42

44

46

48

50

1992 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Employment share of just high school diploma and less than high school diploma (25 years or older)percent

Slow productivity growth helps explain why relatively strong employment growth has not translated into higher wages

‐1

0

1

2

3

4

5

1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Productivtypercent change (20‐qtr rate)


16

A large part of the weakness in productivity growthhas been the weak pace of investment,

although it increased at a solid pace during 2017

‐30

‐20

‐10

0

10

20

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Real private nonresidential fixed investment

percent



This may help explain the productivitygrowth improvement over the past year

‐3

‐2

‐1

0

1

2

3

4

5

6

7

8

1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Productivtypercent change from a year earlier


17

‐2

‐1

0

1

2

3

4

5

6

1990'91 '92 '93'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17'18

Personal consumption expenditure ‐ chain price index


Inflation has been edging higher to the Fed target of 2%

0

20

40

60

80

100

120

140

160

1970 '75 '80 '85 '90 '95 '00 '05 '10 '15

Real West Texas Intermediate oil pricedol lars per barrel, 2016 dollars

In large part inflation has been followingthe pattern of energy prices


18

The rig count has been moving higher

0

500

1,000

1,500

2,000

2,500

1990'91'92'93'94'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18

U.S. rig count

0

2

4

6

8

10

12

14

16

1994'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Real natural gas pricedol lars per mmbtu, 2016 dollars

Natural gas prices remain low


19

3

4

5

6

7

8

9

10

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Energy goods and services expenditures as a share oftotal consumptionpercent

Expenditures on energy arewell below the historical average

3

4

5

6

7

8

9

10

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Energy goods and services expenditures as a share oftotal consumptionpercent

60s

70s

80s

90s 00s

1960‐2017

10s

The FOMC anticipates that PCE inflation will be aroundits two percent target beginning this year

‐2

‐1

0

1

2

3

4

5

6

1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Personal consumption expenditure ‐ chain price index


FOMC


2018 1.7 – 1.9 2019 2.0 2020 2.0 – 2.1

Longer run 2.0


20

0

1

2

3

4

5

1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Personal consumption expenditure ‐ less food and energy ‐

chain price indexpercent change from a year earlier

FOMC

The FOMC anticipates that “core” PCE inflationwill get close to two percent this year


2018 1.7 – 1.92019 2.0 2020 2.0 – 2.1

The Blue Chip Forecast has inflation rates remaining relatively unchanged over through next year

‐10

‐8

‐6

‐4

‐2

0

2

4

6

8

2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Consumer price index

percent



Q4‐2017

Blue Chip CPI Forecast

Actual Forecast 2017 2018 20192.1 2.3 2.2


21

Inflation Exchange Rate

Real GDP % change Against Interest Rates

% change Annual US Dollar 3‐Month

Annual Consumer Prices End of Year End of Year

2017 2018 2019 2017 2018 2019 2018 2019 2018 2019

United States 2.3 2.8 2.5 2.1 2.4 2.2 ‐ ‐ 1.86 2.58

Canada 3.0 2.1 1.8 1.6 2.0 2.0 1.26 1.25 1.90 2.51

Mexico 2.1 2.2 2.3 6.0 4.4 3.8 19.05 18.59 7.04 6.11

Japan 1.8 1.4 1.1 0.5 1.0 1.1 110.0 109.0 ‐0.02 0.03

South Korea 3.1 2.9 2.7 1.9 1.8 2.0 1,070 1,072 1.87 2.10

United Kingdom 1.8 1.5 1.4 2.7 2.5 2.1 1.38 1.40 0.83 1.16

Germany 2.6 2.5 2.0 1.7 1.8 1.8 1.24 1.25 ‐0.23 0.12

France 1.8 2.1 1.8 1.2 1.5 1.5 1.24 1.25 ‐0.23 0.12

Euro Zone 2.3 2.3 1.9 1.5 1.5 1.7 1.24 1.25 ‐0.23 0.12

Brazil 1.0 2.6 2.9 3.4 3.7 4.2 3.36 3.37 6.74 7.34

Russia 1.8 1.8 1.7 3.7 3.6 4.1 58.1 58.8 7.35 7.15

China 6.9 6.5 6.3 1.6 2.3 2.4 6.42 6.46 3.60 3.71

India 6.7 7.3 7.4 3.5 4.9 4.9 65.1 65.3 6.59 6.60

Blue Chip Economic Indicators Forecast March 10, 2018

Blue Chip International Consensus Forecasts

Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Se p-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

Globa l 53.0 52.7 52.6 52.6 52.7 53.1 53.3 53.5 54.1 54.5 54.4 54.2

Unite d Sta te s 53.3 52.8 52.7 52.0 53.3 52.8 53.1 54.6 53.9 55.1 55.5 55.3

Ca na da 55.5 55.9 55.1 54.7 55.5 54.6 55.0 54.3 54.4 54.7 55.9 55.6

Me xico 51.5 50.7 51.2 52.3 51.2 52.2 52.8 49.2 52.4 51.7 52.6 51.6

Eurozone 56.2 56.7 57.0 57.4 56.6 57.4 58.1 58.5 60.1 60.6 59.6 58.6

Germany 58.3 58.2 59.5 59.6 58.1 59.3 60.6 60.6 62.5 63.3 61.1 60.6

France 53.3 55.1 53.8 54.8 54.9 55.8 56.1 56.1 57.7 58.8 58.4 55.9

Ita ly 55.7 56.2 55.1 55.2 55.1 56.3 56.3 57.8 58.3 57.4 59.0 56.8

Spa in 53.9 54.5 55.4 54.7 54.0 52.4 54.3 55.8 56.1 55.8 55.2 56.0

UK 54.2 57.3 56.7 54.2 55.3 56.7 56.0 56.3 58.2 56.2 55.3 55.2

Russia 52.4 50.8 52.4 50.3 52.7 51.6 51.9 51.1 51.5 52.0 52.1 50.2

Japan 52.4 52.7 53.1 52.4 52.1 52.2 52.9 52.8 53.6 54.0 54.8 54.1

China 51.2 50.3 49.6 50.4 51.1 51.6 51.0 51.0 50.8 51.5 51.5 51.6

India 52.5 52.5 51.6 50.9 47.9 51.2 51.2 50.3 52.6 54.7 52.4 52.1

Bra zil 49.6 50.1 52.0 50.5 50.0 50.9 50.9 51.2 53.5 52.4 51.2 53.2

Manufacturers’ Purchasing Managers Indexes


22

62

64

66

68

70

72

74

76

1965 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

United States

Homeownership ratepercent

Midwest

The forecast calls for a continuationof the very gradual recovery in housing

0

500

1,000

1,500

2,000

2,500

1980 '85 '90 '95 '00 '05 '10 '15

Housing starts

thousands

Blue Chip Housing StartsForecast (thousands)

Actual Forecast 2017 2018 20191,207 1,291 1,338

‐40

‐30

‐20

‐10

0

10

20

30

40

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Industrial production ‐ manufacturing

percent



Manufacturing output is increasingafter being unchanged for the past couple of years


23

62

64

66

68

70

72

74

76

78

80

82

84

86

1990'91 '92 '93 '94 '95 '96 '97'98 '99 '00 '01 '02 '03 '04'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16'17 '18

Capacity utilization ‐ manufacturingpercent

Capacity utilization has been movinghigher over the past year,

but is still below full utilization

Manufacturing employment increased by 224,000 workersover the past 12 months

‐25

‐20

‐15

‐10

‐5

0

5

10

15

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Manufacturing employment

percent




24

After setting a record in 2016,light vehicles sales fell by 1.4% in 2017

89

10111213141516171819202122

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Light vehicle salesmil lions of units (saar)

2017 light truck sales were 5.0% higher,while passenger car sales are 11.4% lower

3

4

5

6

7

8

9

10

11

12

13

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Passenger car and light truck salesmil lions of units (saar)

light trucks

passenger cars


25

Light truck market share set a record high in January

30

35

40

45

50

55

60

65

70

1990'91'92'93 '94'95'96'97'98'99'00'01 '02'03'04'05'06'07'08 '09'10'11'12'13'14'15'16 '17'18

Light truck share of light vehicle market salespercent

Alternative powered vehicles (including hybrids)are a very small fraction of total vehicle sales

0

10

20

30

40

50

60

70

80

90

100

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Power‐Typepercent of total sales

Alternative

Gasoline and Diesel


26

Alternative powered vehicles (including hybrids)market share remains very low

0

1

2

3

4

5

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Alternative Powered Vehiclespercent of total sales

Vehicle sales are anticipated todecline this year and edge lower next year

10

11

12

13

14

15

16

17

18

1980 '85 '90 '95 '00 '05 '10 '15

Vehicle sales

mil lions of units

Blue Chip Light‐VehicleSales Forecast

Actual Forecast 2017 2018 201917.1 17.0 16.8


27

Current 3 Month Moving Average Growth is:Above Trend and Accerating

Above Trend and DeceleratingBelow Trend and AcceleratingBelow Trend and Decelerating

Contracting but ImprovingContracting and Deteriorating

5-year Trend 2012 2013 2014 2015 2016 2017Manufacturing 1.1%

Wood Products 3.4%

Nonmetallic Mineral Products 3.2%

Primary Metals -0.9%

Fabricated Metal Products 0.4%

Machinery -0.5%

Computer and Electronic Components 3.0%

Electrical Eqpt, Appliances & Components 1.2%

Motor Vehicles and Parts 5.4%

Aerospace & Misc. Transport Equip 0.3%

Furniture and Related Products 1.2%

Miscellaneous Durable Goods -1.7%

Food, Beverages, and Tobacco 1.6%

Textile and Product Mills 0.9%

Apparel and Leather Goods -5.1%

Paper -1.4%

Printing and Related Support Activities -0.3%

Chemicals 0.7%

Petroleum and Coal Products -0.5%

Plastics and Rubber Products 1.5%

The industrial sector output growthhas been strong over the past several months

Manufacturing Industries Activity ChartGrowth (3-month moving average)

compared with the most recent 5-year trend

The supply managers’ composite indexhas surged over the past year

30

35

40

45

50

55

60

65

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Purchasing managers' index ‐ compositenet percent reporting increases


28

Industrial production is forecast to improveat a pace slightly below its historical rate this year

‐25

‐20

‐15

‐10

‐5

0

5

10

2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Total industrial production

percent



Q4‐2017

Blue Chip IP ForecastActual Forecast 2017 2018 20193.5 2.6 2.3

Credit spreads between Corporate High Yield securitiesand Corporate Aaa securities remains very low


29

The yield curve remains well above zero

‐1

0

1

2

3

4

1990'91'92'93 '94'95'96'97'98'99'00'01 '02'03'04'05'06'07'08 '09'10'11'12'13'14'15'16 '17'18

Yield curve ‐ 10‐year Treasury note yield minus

3‐month Treasury bill yieldpercent

Blue Chip expects the yield curve to continueto flatten through next year, but not invert

‐1

0

1

2

3

4

2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

10‐year T‐Note to 3‐month T‐Bill spread

percent

Q4 ‐2017

percent

Blue Chip Forecast


30

0

1

2

3

4

5

6

7

8

9

1990'91 '92'93 '94 '95 '96 '97'98 '99'00 '01 '02 '03 '04'05 '06'07 '08 '09 '10 '11'12 '13 '14 '15 '16 '17 '18

Fed Funds ratepercent

The Federal Reserve increased the Federal Funds rate by 1.25% since December 2015

0

1

2

3

4

5

6

7

8

9

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Target Federal Funds Ratepercent

FOMC

The Federal Funds Rate is expected to bearound the neutral rate by the end of 2019


2018 1.9 – 2.42019 2.4 – 3.12020 2.6 – 3.1



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0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Assets of the Federal ReserveBi l lions of dollars

Term Auction Credit

Securities Held Outright

Central Bank Swaps

Maiden Lane II & III

Commercial Paper Facility

2007 2008 2009

Term Asset‐Backed SecuritiesLoan Facility

AIG Support

Maiden Lane

2010 2011 2012 2013 2014 2015 2016 2017

The Fed’s balance sheet has remained flat for several years and the Fed began reducing it in October 2017

•The outlook is for the U.S. economy to expand at a pace

above trend in 2018 and around trend in 2019 and 2020

Summary

•Employment is expected to rise moderately with the

unemployment rate remaining little changed and very low

•Inflation is forecast rise to the Fed’s Inflation target this year

•Vehicle sales are anticipated to edge lower this year

•Manufacturing output is expected to increase at a rate

just below trend in 2018

•Housing is predicted to improve at a modest pace


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www.chicagofed.org www.federalreserve.gov

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