Panel
Macroeconomic Outlook
Milken InstituteKomal Sri-Kumar, Rishi Kapoor, Tad Rivelle, Seema Shah, Nathan Sheets, Christopher Smart
- Panelists anticipate a global economic slowdown or recession occurring between 2020 and 2021, driven primarily by central bank tightening, balance sheet reductions, and potential geopolitical friction reducing international cooperation.
- The Federal Reserve is projected to raise interest rates two to three times in 2018, followed by three hikes in 2019 and two in 2020, while the ECB is expected to stop balance sheet expansions by late 2018, enact one or two hikes in 2019, and initiate balance sheet reductions in 2020.
- 10-year US Treasury yields are forecast to reach the 3.15% to 3.20% range by the end of 2018 and approximately 3.5% over the subsequent two years, with 3.5% identified as a critical turning point for equities and growth.
- China's economic trajectory is expected to show a steady decline over the next decade, potentially settling in the "upper fives" without a debt blow-up, though a hard landing would have severe global consequences across all continents.
- Significant risks include the accumulation of leverage in the investment grade sector reaching 2007 levels, commercial real estate excesses, and a potential "hard landing" in China that could trigger a sharp downturn if central banks cannot rely on quantitative easing again.
- Despite these risks, some panelists view the current cycle as sustainable, citing improved private sector balance sheets, productivity gains allowing for higher wages, and a reflationary phase supported by fiscal stimulus including tax cuts and a $150 billion budget injection between 2018 and 2019.
- A divergence in economic assessment exists, with some experts viewing the economy as "late" in the cycle or "cracked" due to high asset prices relative to growth, while others consider it to be in the "middle" stages with a possibility for further expansion before a eventual downturn.
- Global debt levels are noted to be near 270% of GDP, with warnings that artificial asset prices created by central bank support must eventually reconcile with market realities or risk a systemic reckoning.