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FT-IGM Macro Survey, on GDP, Inflation, Monetary Policy

Summary:
From FT Friday, “Economists predict US interest rate rise in 2022” (Colby Smith/Christine Zhang), discussion of results of the second FT-Chicago Booth IGM survey of macroeconomists: The Federal Reserve will have to wind down its pandemic-era stimulus programme quickly and raise US interest rates in 2022 in response to higher inflation, according to a poll of leading academic economists for the Financial Times. The latest survey conducted in partnership with the FT by the Initiative on Global Markets at the University of Chicago Booth School of Business suggests a much more aggressive approach to tightening monetary policy than the Fed’s most recent projections and market expectations indicate. This is shown in the FT graphic. The ungated survey can be found here. Some points that were

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From FT Friday, “Economists predict US interest rate rise in 2022 (Colby Smith/Christine Zhang), discussion of results of the second FT-Chicago Booth IGM survey of macroeconomists:

The Federal Reserve will have to wind down its pandemic-era stimulus programme quickly and raise US interest rates in 2022 in response to higher inflation, according to a poll of leading academic economists for the Financial Times.

The latest survey conducted in partnership with the FT by the Initiative on Global Markets at the University of Chicago Booth School of Business suggests a much more aggressive approach to tightening monetary policy than the Fed’s most recent projections and market expectations indicate.

This is shown in the FT graphic.

FT-IGM Macro Survey, on GDP, Inflation, Monetary Policy

The ungated survey can be found here. Some points that were of particular interest to me:

  • GDP q4/q4 growth in 2021
  • Core PCE 12 month inflation in 2021

Median growth in the most recent survey is 6% q4/q4. This is shown in Figure 1, in comparison to other forecasts.

FT-IGM Macro Survey, on GDP, Inflation, Monetary Policy

Figure 1: GDP as reported (black), CBO projection (blue line), Administration (red squares), Survey of Professional Forecasters (green), FT-IGM (tan large square), and potential GDP as estimated by CBO (gray line), all in bn. Ch2012$, SAAR, all on log scale. Dates pertain to date of forecast finalization. NBER recession dates shaded gray. Source: BEA 2021Q2 2nd release, OMB FY’22 Budget, Philadelphia Fed SPF (May), and FT-IGM survey (September), CBO Economic Outlook (July), and author’s calculations. 

Since late June, forecasters on average have become less optimistic, as shown in Figure 2.

FT-IGM Macro Survey, on GDP, Inflation, Monetary Policy

Figure 2: GDP as reported (black), Survey of Professional Forecasters (green), FT-IGM September median forecast  (tan large square), FT-IGM June median forecast (purple box), and potential GDP as estimated by CBO (gray line), all in bn. Ch2012$, SAAR, all on log scale. Source: BEA 2021Q2 2nd release, OMB FY’22 Budget, Philadelphia Fed SPF (August), and FT-IGM survey (September), CBO Economic Outlook (July), and author’s calculations. 

Notice that the downward movement in forecasted Q4/Q4 growth — from 6.5% to 6%.

My point estimate was 5.4% (80%ile band was 5.1% to 5.7%), which is below the median response of 6% (90%ile was 6.4%, 10%ile was 4%). I was a bit surprised that I was so pessimistic relative to the overall group. After all, we already know Q1 and Q2 growth (SAAR): 6.3% and 6.6%; last week when I responded, the Atlanta Fed GDP nowcast (“GDPNow”) for Q3 was 3.7%. That means we have some idea of 3/4 of GDP growth (calculated q4/q4 — see how this differs from y/y on annual data). My 5% estimate for Q4 growth was a bit below the August Survey of Professional Forecasters median of 5.2%. To get the higher numbers, one has to believe both the Q3 outcome will be higher than the nowcast as of last week (and as of today’s revision, still 3.7%), and/or Q4 will come out higher than 5%.

The other issue is inflation. The survey focused on core PCE. Here’s the FT-IGM forecast compared against others.

FT-IGM Macro Survey, on GDP, Inflation, Monetary Policy

Figure 3: Core personal consumption expenditure deflator as reported (black line), CBO (blue line), Survey of Professional Forecasters (green line), FT-IGM (tan large square), FT-IGM, and 80%ile band (tan +), 2012=100, all on log scale. NBER defined recession dates shaded gray. Source: BEA via FRED, Philadelphia Fed SPF (August), and FT-IGM survey (September), CBO Economic Outlook (July), NBER, and author’s calculations. 

The FT-IGM median forecast is for a December 2021 price level slightly higher than that indicated by the August Survey of Professional Forecasters. The FT-IGM early September forecast (survey take 9/3-8) is also 0.7% higher (log terms) than the one taken late June (6/25-6/28, results here), reflecting the actual increase in reported PCE core deflator over the intervening two and half months (so 2 releases) and a slightly lower pace of inflation — the median Q4/Q4 forecasted growth rate rose from 3.0% to 3.7%. (I’m exactly at the median.)

FT-IGM Macro Survey, on GDP, Inflation, Monetary Policy

Figure 4: Core personal consumption expenditure deflator as reported (black line), Cleveland Fed nowcast (red line), September FT-IGM median (tan large square), FT-IGM, and 80%ile band (tan +), June FT-IGM median (light blue open square), FT-IGM, and 80%ile band (light blue +), 2012=100, all on log scale. NBER defined recession dates shaded gray. Source: BEA via FRED, Cleveland Fed (as of 9/10), and FT-IGM surveys (September, June), NBER, and author’s calculations. 

The Cleveland Fed’s current nowcast are running above the implied average growth rate of the deflator, as implied by the September IFT-IGM survey. If the Cleveland Fed nowcasts prove accurate, then the FT-IGM median level will be hit if core PCE inflation rate averages 1.04% in October-December.

Interestingly, while the point forecast rises noticeably, the 80%ile bands corresponding to the two forecasts overlap substantially.

We’ll get some additional information on prices in Tuesday’s CPI release.

The ungated survey can be found here,  Smith/Zhang FT article here.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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