The economy has been full of surprises this year, starting with economic troubles in China that helped fueled two months of financial market turbulence and raised worries the U.S. economy could be headed for a recession. Economic forecaster Mark Zandi shares his thoughts on what investors can expect going forward.
Q: Once again, we had a weak start to the year. In the first quarter, gross domestic product expanded at a lackluster annual rate of 0.8 percent. What are you expecting over the next three quarters?
A: In the current April-June quarter, GDP is now tracking closer to 3 percent. I think we will settle in around 2.5 percent growth for the second half of the year. For the year as a whole, growth will come in at just about 2 percent, which is what we have averaged for each year since the recovery began seven years ago.
Q: Federal Reserve officials included a surprise in the minutes of their April meeting, indicating that they might raise rates at their next meeting on June 14-15, something that investors had not expected. What is your outlook for the Fed?
A: I don’t think the Fed has prepared markets sufficiently for a June rate increase. But I do expect a rate hike at the July meeting, and if not in July, then in September. And I do anticipate a series of rate hikes through 2017 and 2018, in large part because the U.S. economy is closing in on full employment very rapidly. I think the Fed will pretty soon run the risk of an over-heating economy if they don’t normalize rates more quickly.