Bloomberg Survey of Economists

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1 Bloomberg Survey of Economists December 2018 Economists Lower Rate Forecasts but Expect Economy to Con nue Growing in 2019 Economists revised their 2019 growth forecasts slightly lower and expect interest rates to remain more rangebound than previously expected in the December Bloomberg Survey of Economists. Slowing housing ac vity and recent market vola- lity appear to be the primary catalysts for these revisions. While most categories of growth were only frac onally changed in the December Survey, a notable outlier was the outlook for private investment. Projec ons for total private investment were revised lower for each of the next four quarters by an average of 0.8% per quarter. While business investment has been weaker than expected, surprisingly weak housing data have served as the primary driver for weaker investment forecasts. New home sales are projected to be 4.4% lower in 4Q18, 3.2% lower in 1Q19, and 2.9% lower for full-year Addi onally, exis ng home sales are now expected to grow in 2019, but be 0.7% weaker than November s forecast. As a result, expecta ons for 2019 GDP growth were trimmed from 2.7% to 2.6%. Also noteworthy in the December survey, economists now expected slightly slower infla on in In November s survey, headline CPI was expected to average 2.3% in 2019 while core PCE infla on was expected to average 2.1%. December s survey shows economists notching those figures down to 2.2% and 2.0%, respec vely. Recent infla on data have proven to be slightly so er than expected and oil prices have fallen more than economists expected. The biggest change in the November survey results was the outlook for interest rates. Interest rate markets saw drama c changes during the inter-survey period. The 10-year Treasury yield averaged just above 3.20% leading into the November survey but fell to 2.85% ahead of December s. Likewise, the 2-year Treasury yield fell from 2.95% to 2.75% over the same period. As a result, economists lowered their year-end 2018 forecasts for both Treasurys, with the 10- year tracking forecast down 0.15% to 3.05% and the 2-year down 0.11% to 2.84%. Those adjustments affected future projec ons as well with year-end 2019 forecasts down 0.12% to 3.32% for the 10-year, and down 0.14% to 3.14% for the 2-year. Fed Funds projec ons were also lowered. While economists s ll expect a December 2018 rate hike followed by two addi onal hikes in 2019, they now implicitly expect just a 26% chance of a third hike in 2019, down from a 66% chance. While economists forecasts con nue to look similar to Fed projec ons, investors in Fed Funds Futures contracts show much less confidence in the Fed s ability to hike two or three mes in Futures contract values changed from pricing in two rate hikes in 2019 (November 8 contracts) to less than a 50% chance of one hike (December 14 contracts). All told, the economy is s ll expected to grow at an above-trend growth rate in However, that growth rate is expected to be slower than recent quarters. Infla on is expected to remain near-target, the labor market remain ght, and housing to con nue floundering from the decline in affordability. Survey s economic projec ons based on data at me of survey release. Interest rate data based on the real me updated forecasts. Craig Dismuke, Chief Economist INTENDED FOR INSTITUTIONAL INVESTORS ONLY. The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.

2 Bloomberg Survey of Economists Craig Dismuke, Chief Economist

3 Craig Dismuke, Chief Economist

4 Craig Dismuke, Chief Economist