U.S. economy likely to expand moderately going forward, core inflation to near 2 pct by 2020 – DNB Markets

The U.S. economy is expected to grow just moderately in the near future. According to a DNB Markets research report, the suggested tax cuts by Trump are unlikely to be implemented, even in a modified version. Meanwhile, a slightly stronger development for business investments is likely in 2017 and in 2018.

The U.S. economy is expected to grow 2.1 percent in 2017 and 2.2 percent in 2018, slightly higher than potential, stated DNB Markets. Therefore, the jobless rate is expected to drop further. Core PCE inflation is expected to remain well below target in 2017, but gradually approach 2 percent by 2020.

Meanwhile, the U.S. Fed is expected to lift the Fed funds target rate again in December of this year and twice per year in 2018 and 2019. This is considerably more than what is priced into the market; however, less than what the Fed’s dot chart indicates, stated DNB Markets. The Fed is expected to soon announce a start of the reduction of the balance sheet during the September meeting in 2017. The central bank is also likely to follow the plan with a gradual rise to USD 50 billion from USD 10 billion per month. The process is expected to go on for several years and a reduction throughout the entire forecast period is expected, added DNB Markets.

Several political risk factors related to Trumps presidency might impact the U.S. economy going forward, for instance tax-reform, Russia-investigations, debt ceiling, trade policies and North Korea. These issues so far do not appear to have had any considerable effect on economic developments. Consumer and business sentiment rose considerably post election and might drop if some of the policy risk factors materialize. Lower confidence might impact household demand and business investments negatively, said DNB Markets.

At 22:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -38.9921. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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