Forecast: U.S. Economy Modestly Stronger in 2016

Newswise — CLEVELAND—Economist Mark Sniderman, executive in residence at Case Western Reserve University’s Weatherhead School of Management, on Friday predicted moderate expansion in the U.S. economy in 2016 and a bump in interest rates.

Sniderman, adjunct professor of economics and a former executive vice president and chief policy officer with the Federal Reserve Bank of Cleveland, offered those projections and more at the 42nd David A. Bowers Economic Forecast Luncheon at the Cleveland Renaissance Hotel.

Sniderman forecasted the Federal Open Market Committee (FOMC)—the Federal Reserve monetary policy-making body—to increase its federal funds rate target at its meeting next Tuesday and Wednesday (Dec. 15-16).

He suggested the most important news will not be a rate hike, but what the Federal Reserve committee has to say about a strategy to tighten policy in response to evolving economic conditions.

Sniderman characterized the U.S. economy as “being in fairly good shape, considering the significant blow it suffered during the worst recession since the Great Depression.” The nation’s unemployment rate has returned to 5 percent—a rate Sniderman expects to continue for the next year as the economy continues to expand. “The expansion itself is likely to be a moderate one, in the range of 2½ to 3 percent next year, and slightly slower in 2017,” he said. Sniderman expects inflation, at just under 2 percent, once the effects of falling energy prices are removed, will continue at that pace next year and beyond. He also expects a continuing jobs expansion amid a gradual tightening in labor market conditions.

“If this happens, people should see their earnings improve over time,” he said. “Business executives are cautious and willing to expand capacity slowly, and in response to—rather than ahead of—consumer spending.” Sniderman said the Federal Reserve has to pay attention to structural changes in the global economy, and factor those changes into its monetary policy process. He believes there is “a high degree of uncertainty” surrounding these shifts.

“Europe is still struggling to regain its footing after the global recession, and not likely to be a stronger market for U.S. goods and services,” he said.

As for global concerns, Sniderman explained that China is putting a greater emphasis on its domestic markets after decades of vigorous capital spending and export led-growth.

As a result, he said, “this re-balancing act will take time and expose the Chinese economy to more economic fluctuations than we have seen in the past.”