Changes to the Moody’s Analytics outlook for the U.S. economy were modest in April. Recent economic data continue to point to softer first quarter growth. As a result, we have further lowered our first quarter real GDP growth forecast from 1.7% on an annualized basis to 0.9%. Weak first quarter growth is the result of residual seasonality and other transitory factors, including unseasonably warm weather. Changes to the real GDP forecast past the first quarter were modest and were mostly the result of changes to fiscal policy assumptions, which now call for less near-term fiscal stimulus. A more detailed discussion of the new fiscal policy assumptions can be found here. Moody’s Analytics expects real GDP to rise 2.2% in 2017 and 2.5% in 2018. 

Our federal funds rate forecast remains unchanged from last month. As expected, the Federal Reserve raised the target range of the federal funds rate by 25 basis points, to 0.75% to 1%, at its March Federal Open Market Committee meeting. We expect conditions to warrant two additional rate hikes this year with the Federal Reserve beginning more aggressive tightening in 2018.  

With less fiscal stimulus forecast, the unemployment rate will bottom out later this year instead of at the end of 2018. Changes in long-term interest rates, inflation, oil prices, and housing activity were little changed from last month’s forecast.

A tabular comparison (available to subscribers) of the current and prior vintages is available under Reference Files » Forecast Documentation » U.S. Macro Forecast M/M Comparison.

The only stochastic CCAR variable that received a qualitative overlay this month was the 10-year Treasury rate. It was updated to reflect the most recent historical data in order to keep the forecast and history consistent.