US Economic Outlook
GDP growth looks to rebound strongly in 2Q18. An increase in both the manufacturing and services PMIs in June, still-strong consumer confidence and job growth, and a sturdy rebound in housing starts in May support our forecast. Growth in 2H18 is likely to cool somewhat from the 2Q pace, but is projected to remain above trend. As expected, the Fed raised the fed funds target rate by 25 bps in the June meeting, and the accompanying statement noted that "the labor market has continued to strengthen and economic activity has been rising at a solid rate." We maintain our forecast that the Fed will raise interest rates two more times in 2018. On the inflation front, core PCE inflation reached the Fed's target of 2.0% in May, after remaining below it for more than six years. Altogether, our baseline scenario of above-trend 2.9% GDP growth for all of 2018, along with firming inflation, remains intact. However, the balance of risks has moved somewhat to the downside due to an escalation of trade disputes between the US and its trading partners.
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