Fed Hike Forecasts Set Back - Nomura

Fed Hike Forecasts Set Back - Nomura

In response to the weak employment report and a string of other unimpressive economic data, we changed our forecast for the timing of the next interest rate hike to September from June.

In addition, we now expect only 1 hike in 2016 and 2 hikes in 2017, down from our previous expectations of 2 and 3 hikes, respectively.

Since the FOMC raised rates in December, the US economy has grown at a relatively modest pace and the pickup in inflation was short-lived. Economic activity slowed at the end of last year and the BEA’s first estimate of GDP growth in the first quarter was only 0.5%.

Currently, our Q1 GDP tracking estimate stands a bit higher at 0.8% but still well below any reasonable estimate of potential growth. Early data for Q2 suggest it will take some time for growth to reaccelerate. As a result, we have lowered our forecast for growth in Q2 to 1.7% from 2.2% previously.