Economic Outlook: Finance Professor Presents at Annual Forecasting Conference

William V. Rapp, Martin Tuchman School of Management’s Henry J. Leir Professor of International Trade and Business, and director of the Leir Center for Financial Bubble Research, was one of 34 presenters invited to discuss the 2019 economic forecast at the Federal Reserve Bank of Chicago’s 32nd Annual Economic Outlook Symposium. The event, held Nov. 30, welcomed participants from manufacturing, banking, academia and other industries, and consulting and service firms.

According to a press release issued by the Federal Reserve Bank of Chicago, the conference “provided a consensus outlook — forecasts for major components of real gross domestic product (GDP), as well as several key statistics for the U.S. economy.” The median forecast results indicate that “the nation’s economic growth rate is expected to be somewhat above its long-run average, the rate of inflation is predicted to tick down, and the unemployment rate is forecasted to be steady at a very low reading.”

Additionally, real consumer spending is expected to “continue to grow at a moderate pace,” while real business spending is predicted to “slow but remain solid.” The expert consensus also points to growth in the housing market, a decrease in car and light-truck sales, and a slight drop in the price of oil. As for interest rates, the forecasters anticipate both the short-term and long-term interest rates to rise, by 56 and 35 basis points, respectively.

Rapp’s forecast was one of two noting a possible recession next year, though in his forecast he only predicted growth below the consensus. However, his forecast does predict actual declines for autos and housing starts due to the likely increase in Federal Reserve tightening. In this regard, he was the only forecaster at the conference that noted the large discrepancy between the Consumer Price Index (CPI), on which the Fed usually focuses, and the GDP deflater, which actually measures U.S. inflation without the impact of lower prices due to imports. Between 2012 and 2017, the GDP deflator on average rose 1.6 percent per year roughly in sync with the CPI. But in the first nine months of 2018, it jumped to over 3.2 percent, a percent or more above the CPI.