Survey: Economy will grow, Fed will end asset purchases this year

Despite a slow start, economic growth is expected to pick up pace this year and into 2015, which should lead the Federal Reserve to end its massive monetary stimulus.

Severe winter weather is expected to shave first-quarter growth to an annual rate of 1.9 percent but it should hit 3 percent by year’s end, the National Association for Business Economics (NABE) said on Monday.

{mosads}On an annual average basis, growth is forecasted to increase from 1.9 percent last year to 2.8 this year and to 3.1 percent in 2015.

“Conditions in a variety of area, including labor, consumer, and housing markets, are expected to improve over the next two years, while inflation remains tame,” said NABE President Jack Kleinhenz, chief economist of the National Retail Federation.

The NABE survey of 48 economists anticipates that the Federal Reserve will continue to taper its bond purchases this year with the majority of the panel expecting purchases to end entirely in the fourth quarter, according to Timothy Gill, survey chairman and deputy chief economist at the National Electrical Manufacturers Association.

About 33 percent of the respondents say higher interest rates are a possibility this year and that increases to half of the respondents for next year.

“Indeed, panelists name rising interest rates as the biggest threat to the economic expansion over the next two years,” Gill said.

The Fed has been gradually reducing its asset purchases each month as the economy has shown improvement.

At each of its last three policy meetings the central bank has reduced asset purchases by $10 billion a month to $55 billion a month.

There are six meetings left in 2014.

Other results of the survey, which was conducted Feb. 19-March 5: 

• Employers are expected to add an average of 188,000 jobs a month for all of 2014, slightly below the 194,000 last year. Job creation should pick up to 205,000 per month in 2015. The unemployment rate is expected to average 6.4 percent in 2014 and decline to 6.1 next year.

• While 57 percent say Fed purchases will end in the final three months of the year, 25 percent expect them to end before that.

• Rising interest rates are considered the biggest threat to the economic expansion, cited by 27 percent of the panelists.

• The odds of a recession in the next two years is low with the median probability of only 15 percent.

• Consumer spending expectations have brightened since the last survey in December. Spending is expected to increase 2.6 percent in 2014 and rise 2.9 percent next year.

• The housing sector recovery will continue, though at a slower pace than anticipated in the December survey. New residential starts are expected to advance a further 15.1 percent this year to 1.07 million units. 

• Home prices should increase 5 percent this year.

• The federal deficit is expected to total $557 billion for fiscal 2014 and $536 billion in 2015.