Bank Economists: Economic Growth to Continue, Supported by Tax Reform Boost

January 22, 2018

The U.S. economy will continue to expand through 2019, resulting in the longest economic expansion since World War II, the ABA Economic Advisory Committee said on Friday. They added that the recent tax reform law will help jump-start consumer spending and business investment.

“This expansion has already spanned nine years, supported by strengthening labor markets, low interest rates and a late-cycle resurgence in business investment,” said EAC Chairman Ellen Zentner (pictured), chief U.S. economist at Morgan Stanley. “Tax reform and the potential for further regulatory easing are likely to add a further near-term boost to growth.”

The EAC -- which is made up of 14 chief economists at some of the nation’s largest banks -- said that it expects to see the national unemployment rate fall to 3.8 percent by the end of 2018, and accelerating wage gains of 3 percent this year and 3.5 percent in 2019. “Tax reform has layered on further incentives to the already strong organic growth that has characterized capital spending over the last 18 months,” Zentner said.

The committee did note that it expects economic growth to slow in 2019, due to the front-loaded nature of the tax law, which will moderate in out years, and rising interest rates, which will make capital investments and purchases of big-ticket items such as motor vehicles more expensive.

Committee members said they anticipate inflation rising gradually to the Federal Reserve’s goal of 2 percent, which will allow the Fed to continue incremental increases to the federal funds rate. The economists forecasted three rate hikes in 2018, with an additional two in 2019, though Zenter noted that “if economic growth and inflation surprise to the upside, then the Fed could move more aggressively.” Read more.

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