US: Strong growth ahead, despite a softer start in Q1 - BNPP

Analysts at BNP Paribas note that the US growth is off to a slower-than-expected start in Q1 and expectations for the 2018 fiscal contribution have dampened since the Republicans failed to repeal and replace Obamacare.

Key Quotes

“However, consumption is expected to pick up throughout 2017, as expectations of a tax break in 2018 rise, while prospects for business investment should follow a similar trend. Faster inflation should serve as a partial offset, but we continue to see above-consensus growth with the risks to our forecast centred on fiscal and trade policy.”

“Members of the FOMC who have built in a fiscal boost to their forecasts have suggested it is only modest, with recent Fed speak suggesting few changes to their outlook after the recent fiscal developments. In our view, growth well above trend is likely to push inflation higher and underscore that monetary policy is behind the curve. We continue to see another two rate hikes in 2017, with balance sheet normalisation likely at the tail-end of the year.”