September 30, 2014 4:31 am
"Job growth is gaining speed and confidence is rising," says TD Chief Economist, Craig Alexander. "The strength in job growth will support consumer spending and energize housing demand, shifting the economy into third gear."
After averaging 2.2 percent in 2014, the economy is forecasted to grow by 3 percent in 2015. With faster growth, the unemployment rate will continue to fall, reaching 5.5 percent by the end of next year.
Stronger job and income growth will support the housing market. "The dearth of new household formations is strongly related to the lack of job opportunities among young people," says Alexander. "As employment rises, the housing recovery should also pick up speed as these first-time buyers come back into the market."
Between January and August, the economy generated over 1.7 million jobs, nearly 300,000 more than the average over the previous three years. The acceleration in job growth has been accompanied by broader signs of labor market improvement. Businesses are reporting high levels of job openings and increasing confidence in the durability of the economic recovery.
With the expected improvement in growth over the next year, the economy is likely to have shown sufficient progress for the Federal Reserve to begin raising short-term rates.
"After almost seven years of zero interest rates, the recovery in 2015 will have finally moved to a stage where rates can begin to move higher," says Alexander. "But, this will occur gradually."
TD Economics expects the Federal Reserve to begin its rate hiking cycle mid next year and bring the fed funds rate up to 0.75 percent by the end of the year. By the end of 2016, the fed funds rate will likely only be at 1.75 percent – still high enough to stimulate the economy.
Source: TD Economics
Published with permission from RISMedia.