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Peter Hooper, Research Analyst at Deutsche Bank notes that the US’s economic developments through the first five months of the year have largely unfolded as they had anticipated and as a result they continue to expect the Fed to hike three more times this year and four times in 2019, bringing the terminal fed funds rate to 3.4%.

Key Quotes

“Further, they believe the Fed could indicate a fourth hike this year as soon as the  June 13  FOMC meeting. Looking further ahead, they believe the risks of a mild recession have risen somewhat as the Fed will likely have to hike through the neutral rate in order to prevent the economy from overheating, while a fading fiscal impulse in 2020 magnifies this risk.”

“Meanwhile  in a global context, Marcos Arana and team noted their global macro view remains positive and still forecast the global economy to grow robustly this year. In the detail, they expect: i) interest rates to rise, with more upside in Europe than in the US, ii) the current dollar strength to be temporary and forecast the euro to appreciate over the medium term, iii) equities, especially in the US should continue to perform well, and iv) while there are short-term risks of a pullback in oil prices, they expect prices to remain high over the medium term.”