Banking economists expect 3 percent growth this year

The nation's economy is forecast to expand at a nearly 3 percent rate this year, up from 2.5 percent in 2014, according to a new survey from a group of banking economists. 

Fiscal and monetary policies are setting up to help sustain growth, jobs gains and more business investment, the Economic Advisory Committee of the American Bankers Association said on Friday. 

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The committee, which includes 15 chief economists from among the largest banks in North America, said that fiscal policy is no longer a headwind on growth as brinksmanship over budget issues and spending policies subside.

The economists point to solid improvements in the banking and real estate sectors, gains in asset prices, big drops in the debt-service burden and growth in consumers' balance sheets as signs of the growing economy.

Amid stronger growth, the committee expects the Federal Reserve to maintain near-zero interest rates through mid-2015 before letting rates gradually rise over the next few years.

“We expect the Fed to calibrate its policy to minimize any shock to growth,” said Ethan Harris, chairman of the group and co-head of global economics research at Bank of America Merrill Lynch.

The group forecasts the federal budget deficit will stabilize at $470 billion in fiscal year 2015.

Falling energy prices, although they are negatively affecting some sectors, also should provide an economic boost to consumers' pocketbooks.

"Gas at about $2 a gallon is like an across-the-board tax cut," Harris said.

"Cash savings at the pump leave more money for consumers to save or spend elsewhere."

On top of that, monthly job gains of 200,000 or higher should continue through this year.

Lower energy costs, more jobs and, eventually, higher wages should lead to 3 percent growth in spending this year, the group predicted.

"Top earners have fared well since the last recession, but the same can't be said for middle and lower-income families," Harris said.

Meanwhile, the group expects business investment to rise 5 percent this year.

As the housing market continues to improve, mortgage rates will rise only slightly to about 4.5 percent from 4, they said.

The group forecasts that consumer credit growth will be modest this year and business lending growth will be stronger, but will return to a more normal pace of growth.  

"We're optimistic that business lending will grow at a double-digit rate this year to finance healthy business investment," Harris said.  

"Stronger growth in business lending will be critical for the economy. Banks are ready to meet demand as businesses take the next step forward."

They also expect inflation to remain tame.

"Outside of energy, the improving domestic economy could put upward pressure on prices, but the weak global backdrop and a strong dollar should limit any inflation acceleration," said Harris.

Overall, the committee believes the greatest near-term risks to the U.S. economy come from outside the country.

"Disappointing growth in Europe, China and Japan is a reminder that the global economy still faces major challenges,” Harris said.

The committee also sees major long-run budget challenges.

"As the baby boom generation retires, the federal budget deficit will balloon again, posing a major challenge to future generations," Harris said.