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The US economy enters the second half of 2018 with above-trend growth, inflation nearing the FOMC’s 2% target and an unemployment rate approaching levels not seen since the 1960s, notes the research team at Nomura.

Key Quotes

“Going forward, however, we believe that the Trump administration’s trade policy initiatives will weigh on growth, primarily through decreased investment in 2018-19. In addition, we believe 2020 will see growth near potential, gradually increasing inflation and a low, but steady, unemployment rate.”

“After four more hikes (two more in 2018 and two in 2019), we believe the FOMC will take a prolonged pause. With fiscal stimulus waning and tighter monetary policy and financial conditions, we see increased risk of a recession starting in the second half of next year and increasing further in 2020.”