Analysts at Nomura believe the US late-cycle surge will continue into 2019, boosted especially by fiscal policy.
Key Quotes
“We anticipate four hikes from the FOMC in 2018 and inflation to gradually climb higher.”
“Economic activity: We expect the US economy to continue to grow significantly above potential in 2018 and 2019, supported by stimulative fiscal policy, before growth decelerates towards potential over 2019 and into 2020.”
“Inflation: Transitory factors that that held down inflation in 2017 have largely abated. For 2018-20, we expect core inflation to pick up gradually as labor markets tighten and the economy moves towards potential.”
“Policy: Facing strong momentum in aggregate demand, tightening labor markets, and inflation at the 2% symmetric target, we expect the Fed to hike two more times in 2018 and two times in 2019 before taking a pause through 2020. With our neutral rate estimate between 2-2.25%, we believe monetary policy will remain in a slightly restrictive stance for some time, tightening financial conditions.”
“Risks: Financial conditions remain accommodative but recent market activity, and history, suggest they can turn quickly. In our view, protectionist US trade policy remains a key risk as US-China tariffs take effect and the US moves forward with an investigation into imports of autos and auto parts. In addition, waning fiscal stimulus in 2019, with the possibility of a fiscal cliff in 2020, could create market angst.”
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