After a weak start to the year, GDP growth is set to re-strengthen to roughly 3% in coming quarters. Underlying inflation is subdued, but rising wage pressure and above-potential growth support the view of a gradual increase next year.
With growth rebounding, and hiring continuing apace, the Fed is likely to begin a gentle rate hike cycle in September.
"With employment solid, growth rebounding and wages rising, we don't think inflation's softness will prevent the Fed from liftoff: we're sticking to our call for a September Fed exit and a very gradual rate hike cycle thereafter." notes BofA Merrill Lynch
