Is the Fed Too Conservative in Growth Forecasts?
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Your Money Briefing. Money and market stories from The Wall Street Journal. I'm J.R. Whalen in New York. Some feel the Federal Reserve was too conservative in its GDP projections last week, considering the amount of stimulus about to enter the economy. Details on that in a moment, but first, these money items you should know about. The Wall Street Journal markets team says refinancings make up a smaller portion of the mortgage business than at any time in the past two decades. And that poses a challenge for lenders who already fear higher interest rates and climbing house prices could eventually depress purchase activity. Now, while purchase activity has climbed steadily from a post-financial crisis peak in 2011, growth in 2017 wasn't enough.
to offset a $366 billion decline in refinancing activity. Last year, 37% of mortgage origination volume was because of refinancings. That's the smallest proportion since 1995, and the number of refinancings is widely expected to shrink again this year. The Journal's Streetwise team says there is no upside for investors if they bet on a trade war. Streetwise reporter James McIntosh says the clearest winners from global trade have been Germany, Japan, South Korea and Singapore. Yet when President Trump announced $60 billion of tariffs on China last week, those stock markets beat the S&P 500 in dollar terms. McIntosh says if President Trump is serious about trashing the global trading system, there are few places investors can hide.
Stocks will suffer, the economy will slow and inflation will pick up. And the journal's wealth management team says oftentimes consumers make a deal with a financial advisor and the fees far outweigh the services actually needed. On WSJ.com, reporter Michael Pollack suggests six questions that consumers should be asking, including, is there a discount on fees?
What immediate market headlines and mortgage trends set the scene for this episode?
And do I really need all your services in the first place? This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. The Federal Reserve gives Wall Street a fairly clear picture of how it views the health and the trajectory of the economy through its projections. Data like inflation, unemployment and the number of times it expects it might make changes in interest rates. But do the Fed's latest projections properly account for lots of fuel about to enter the economy? Wall Street Journal Heard on the Street columnist Justin Layhart is here to discuss. So, Justin, the Fed raised its growth forecast last week, and it raised its GDP outlook for this year and next. But people you spoke with feel the Fed is being a bit modest in terms of the degree of growth that's coming on the horizon.
Sure. If you think about, you know, where we are right now compared to, you know, let's say where the Fed was in September, right? Back in September, we didn't know that we were going to get the tax cut and we didn't know about this huge increase in government spending that we're going to get, right? Now the Fed knows that. But if you look at the difference between their forecast from September and their forecasts now, you know, there is an increase in GDP growth, but maybe not as much as you would expect given how much money is crashing into the economy.
And so the median forecast and the projections from the Fed showed 2.7% GDP growth this year. That's a big jump from what they were saying in September, which was 2%.
Yeah, it seems like a big jump. But again, considering how much money is coming into the economy, it is not that big a jump. So one calculation that Robert Barbera from Johns Hopkins University did His suggestion, what he saw was the multiplier on the stimulus for this year seems to be about 0.45. So let me explain what a multiplier is. So the multiplier is basically how much bang for the buck you get from a fiscal package, from a tax cut, from anything like that. And if it's 45, that means that for every dollar you put in the economy, you get 45 cents worth of growth. That's not very much. And then Bob also looked at his 2019 projections, and that suggests that it's about 0.2, so 20 cents on the buck.
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