Headline Forecasts June 2018

The new data and data revisions of the past month have generated positive changes in my US forecast model. While the model still predicts a drop off of real GDP growth through the end of 2020, the rest of 2018 and the beginning of 2019 reflect the short-term fiscal stimulus. The model implies that by the end of 2020 we will return to the long-run average of about 2 percent. It would by incorrect to assume that the long-run forecast implies that there will not be a recession in 2020, since the model is not designed for long-run recession forecasting.

The recent increase in the federal funds rate has had a marked impact on the models inflation forecast, with inflation slowing through the end of 2019. This is, of course, the objective of monetary policy makers, and I suspect that the model is being overly pessimistic about Q3 2018.

The models unemployment forecasts are starting to fall more in line with recent data releases. The trough of unemployment is still predicted in early 2019, with accelerating increases in unemployment through 2020. This could signal the potential for a recession by the end of 2020, and certainly would suggest that an economic head-wind or two could set off a recession in 2020.

Just as I did in the previous month's forecast, I provide my aggregated expectations of inflation, real GDP growth, and the federal funds rate below.