US Economic Outlook - 7 June 2019
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A number of trade war-related developments have taken a turn for the worse over the past month: the spat between US and China has escalated and spilled beyond tariffs. The US has also effectively raised tariffs on India, and proposed unprecedented tariffs on Mexico. Uncertainty around the exact timing, extent and duration of actual tariff implementation remains high, but the US relationship with both China and Mexico is likely to get worse before things get better. With strong 3.1% qoq annualized 1Q19 GDP growth in the second estimate, we still expect full year growth of 2.5% in 2019, but have lowered our projection for 2020 to just 1.6%. Given current bond market levels and lower medium-term growth expectations, we have also revised down our forecast for the 10-year bond yields, to 2.4% at end-2019 and 2.3% next year. Additionally, although a close call, we now expect the Federal Reserve to enact an insurance rate cut in September.