Philidelphia Fed Survery of Professional Forecasters: GDP, CPI and 10-Year Treasury Rates

The Philadelphia Federal Reserve does a quarterly economics survey (download it here) of some 48 professional forecasters from key financial institutions.  Here are the just released results for 2013.

The mean estimate for PCE inflation (personal consumption expenditures), the favored Fed measure of inflation, for 2013 is 2.2%.  The mean estimate for the 10-year Treasury yield for 2013 is 2.1%.

That means the group predicts a negative real yield of 0.1% on the 10-year Treasury in 2013.  If you add an approximate 40% tax on top of that (considering scheduled 2013 income tax, medicare tax on investment income, and state and local income taxes that may apply to some investors), the real, after-tax return on 10-year Treasuries would be something like negative 0.9%.  If the overall tax load were only 25%, the real, after-tax yield would be about negative 0.6%.

The current spread is also slightly negative.

Here is a chart from the St Louis Federal Reserve plotting the 10-year Treasury yield (green line), the all-items US CPI (red line) and the Treasuries less CPI spread on an annual basis since 1955 (black line).  The average spread is positive 2.52% (Treasuries yielding that much in excess of concurrent CPI).  The median spread is 2.67%.

On a monthly basis the maximum spread is 8.12% and the minimum spread is  negative 3.48% (which occurred in January of 1974 — a period of stagflation, and near bankruptcy of New York City — 7.56% Treasury yields and 11.0% CPI ).

Here is the dispersion of forecasts on 2013 inflation from that report.  The maximum was 4% and the minimum was 0%.

Here is the dispersion of real (after inflation) GDP forecasts for 2013.  The median forecast is 2.1%.  Maximum is 6% and the minimum is negative 3%.

If you add the median inflation forecast to the median real GDP forecast, you get a plausible median nominal GDP growth rate forecast for 2013 at 4.3%.

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