June 2018 WSJ Forecast Report
The latest WSJ economic forecasts were released yesterday, and they mostly confirm a stable trajectory for the rest of the year. Q2 GDP growth expectations jumped a third of a percent to 3.58 percent. Yields are holding steady with an expected cessation in contractionary monetary policy by the end of 2019, with the Fed Funds expected to reach 3 percent. Unemployment rate projections continue to fall through the trough is still likely to occur in mid-2019.
While the revisions mostly suggest a current robust state of the economy, there were some negative indicators. The consensus recession probability ticked up by more than one percent to almost a 16 percent chance of a recession in the next 12 months. While expected growth in 2019 is slightly above US long-run average, the current expectations for 2020 suggest a possibility of a recession. Supporting this evidence: the expected yield curve spread (bond yield minus the federal funds rate) in 2020 is only half a percent, while the expected spread for June 2018 is over 1 percent.
Taking this all together, the short-run looks quite good, but there are clouds on the medium to long-run horizons.
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