US banking group sees 3 more Fed rate hikes in 2018
The trend of solid US economic growth should continue into 2018, setting the stage for potentially three more Federal Reserve rate increases next year, the American Bankers Association said Thursday.
The banking group's economic forecast committee predicts a "slight acceleration" in the 2018 economy from the expected two percent growth in 2017, with a 0.3 percentage point bump expected due to fiscal stimulus.
"The extent of the improvement in 2018 will depend largely on the size and composition of fiscal stimulus," said Christopher Probyn, chairman of the ABA panel and managing director and chief economist at State Street Global Advisors.
President Donald Trump's agenda includes growth measures such as fiscal stimulus and tax cuts, although progress on the program has been slow due to an ongoing probe of the Trump campaign's ties to Russia and other controversies.
The ABA projections were broadly consistent with the outlook of the Federal Reserve, which earlier this month pointed to an improving labor market and solid consumption trends as the basis for hiking interest rates and signaling a third increase was likely in 2017, in spite of inflation remaining stubbornly below the targeted level.
The ABA panel expects the Fed to again boost interest rates in December 2017 and three more times in 2018, although it cautioned that these moves will depend on economic trends.
"If economic growth surprises to the upside, then the Fed could move more aggressively," Probyn said. "Conversely, if the recent slowdown in inflation persists, it could lead the Fed to pause, especially if wage growth stalls."
The ABA panel is composed of about 15 economists from large financial groups such as Wells Fargo and Morgan Stanley.
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