February 2018 WSJ Report

The February WSJ forecasts are in and, in general, we are seeing good news. First off, 2018 Q1 expected GDP growth is up a quarter percent to 2.6 and the expected unemployment rates through 2020 all fell. The trough of unemployment is still hovering around mid 2019. Expected payrolls forecast rose by almost 8400, strengthened by the robust January employment report.

Inflation expectations increased again, standing firmly above 2 percent. Expected housing starts are more or less unchanged, but housing price forecasts for 2018 and 2019 both rose a tenth of a percent. We also saw a huge increase in crude oil expectations as almost all future prices rose by more than 2 dollars, with price expectations above 60 dollars for the next two years. Finally, consensus recession expectations rose, but still remain low, with less than a 14 percent chance of a recession in the coming 12 months.

As I have noted in previous reports, December and January Reports, the spread between the expected future federal funds rate and the ten-year bond rate has been tightening. This month, ten-year bond rate forecast all rose by over a tenth of a percent, whereas consensus expected Federal funds rate increases were more modest. This is good news for monetary policy makers, because they will be able to use the long end of the yield curve when the next recession begins. However, in the short term, particularly given the recent sell off of stocks, this presents a potential head wind against our waning economic recovery.