Stronger dollar will hold back exports

The economy remains strong, with the fiscal stimulus still providing a big boost but, looking beyond headline GDP growth, there are signs that rising interest rates and the resurgent dollar are beginning to weigh on activity. Higher long-term rates have hit housing market activity and contributed to the moderation in motor vehicle sales, although business investment is still solid, in part because corporate borrowing costs remain low. At the same time, the 8% rebound in the trade-weighted dollar since February will soon start to hold back exports, with real export growth likely to slow to near-zero. As the fiscal stimulus begins to fade next year, and the Fed continues to hike interest rates, we expect GDP growth to slow over the coming quarters.