U.S. Outlook: Interest rates hit the floor
The most visible sign that the global and U.S. economic and financial environments may be shifting under our feet comes from the large drop in longer-term U.S., German, and Japanese interest rates over the past week. Today’s low market rates suggest a weaker global economic outlook, looser monetary policy, and more deflationary pressures ahead.Key observations:
- We shaved our forecast for U.S. growth for 2017 from 2.3% to 2.1%, or by two-tenths of a percentage point.
- I anticipate less growth in U.S. exports and business investment in the quarters ahead as global uncertainty remains high and the U.S. dollar remains relatively strong compared to our major trading partners.
- For the Fed, this change in the U.S. and global economic and inflation outlook likely means another delay in hiking the Fed funds target rate.
- I expect only one rate hike from the Fed in 2016, now in December, and only two quarter-point hikes in 2017.
- Even with these cuts to the U.S. growth and interest rate outlook, I see the risks in the outlook still tilted more to the downside than the upside.