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Economist: Recession still years away

Banking & Finance
Ashley Heffernan
  • Ashley Heffernan
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It will likely take the Federal Reserve until 2020 to raise the federal funds rate to a neutral rate of 3%, meaning any possibility of a recession is still years away, according to Stephen Slifer, owner and chief economist at Charleston-based NumberNomics LLC.

Slifer was chief U.S. economist for Lehman Brothers in New York City for more than 20 years and spent a decade as a senior economist at the Board of Governors of the Federal Reserve. He revealed his annual economic forecast today at the Daniel Island Club.

“They’re going to raise rates very slowly,” Slifer said. “I characterize it as a glacial pace, which seems to be close.”

Economic indicator forecasts
for 2016-2018

Economic indicator








Unemployment rate








Federal funds rate




10-year note




30-year mortgage




Source: Stephen Slifer    

He predicted that the Federal Reserve will raise the rate to 0.5% at its next meeting later this month, increase the rate two more times in 2017 to 1% and then three additional times in 2018 to 1.8%.

The federal funds rate is the interest rate at which banks and other depository institutions lend money to each other.

“In my view, that’s still pretty low. But it raises the question of how high’s the Fed going to raise rates here?” he said. “I would suggest that a funds rate of something around 3.0% is what the Fed would consider to be neutral, where it’s no longer trying to stimulate the economy, but it’s not trying to slow it down either.”

Slifer said he determined 3% to be the neutral rate by looking at the relationship between the funds rate and inflation. Over the past 50 years, the funds rate has been neutral when it was about 1% above the inflation rate. Since the Federal Reserve’s target inflation rate is 2%, the neutral rate must be 3%, he said.

“You’re not going to get there until about the middle of 2020,” he said. “They’re taking their time with this.”

The U.S. economy has never gone into a recession until the Federal Reserve has pushed the funds rate above the neutral rate, according to Slifer.

“If you’re not getting back to neutral until 2020, I would suggest that’s the earliest time we ought to think about a recession,” he said.

If the current expansion period, which started in June 2009, lasts until 2020, it would be the longest expansion on record, Slifer said. The current record is 10 consecutive years of expansion in the 1990s.

“The Fed gets a lot of grief — rates are too high, rates are too low — but you know what, if you can produce an expansion that lasts a record-breaking 11 years, I would argue you’re doing a pretty darn good job,” he said.

Reach Ashley Heffernan at 843-849-3144.

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