ECONOMIC REPORT OF THE PRESIDENT

as a market forecast of the 10-year interest rate a decade from today but
may diverge from it due to liquidity and maturity risk premia. Some of the
gap between the market-implied rate and the consensus forecast may be
explained by a lower term premium, global flight-to-safety flows, or divergent
expectations about long-term productivity and output growth. Forward
rates incorporate risk premia, can be highly volatile, and their movements
may reflect transitory developments as opposed to structural changes; as
such, they may be poor predictors of future rates. For a more in-depth
analysis into the 10-year U.S. Treasury rate, 10 years forward, and the overall
shift to lower long-term rates, see the Council of Economic Advisers (2015d)
report, “Long-Term Interest Rates: A Survey.”
Energy Prices
Weakness in oil prices contributed to equity and credit market volatility
in the first two months of the year. Brent crude oil closing prices fell
to less than $30 a barrel in late January and touched $30 a barrel again in
early February on data suggesting slower Chinese growth would depress oil
demand, dollar appreciation would restrain price increases, and that excess
supply would persist. Oil prices have rallied since then and have mostly hovered
between $40 and $50 a barrel since April (Figure 2-40), exceeding $50
in the beginning of November as OPEC members agreed to an output agreement
capping production at 32.5 million barrels per day, 3 percent below the
33.64 million barrels per day reported by OPEC members in October.
The Global Macroeconomic Situation
The growth of the global economy in 2016 is expected to be the
same as in 2015, but was below the year-earlier expectations of a rebound.
Relatively lower growth is both a long-term phenomenon, with advanced
economies repeatedly underperforming over the past six years, and the
manifestation of short-term developments arising in part from uncertainty
in European markets following the Brexit vote as well as recessions and
continued risks in selected emerging markets. Downward revisions to
growth forecasts occurred amid an environment of weak global demand
and investment and disappointing global productivity growth. Compared
with forecasts in October 2015, IMF forecasts for four-quarter growth in the
October 2016 World Economic Outlook reflected downward revisions across
both advanced and emerging markets, resulting in a downward revision
in the global four-quarter growth forecast for 2016 from 3.6 percent to 3.1
percent (IMF 2015b; IMF 2016b).
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