The recent activity data indicate that first-quarter GDP growth slowed to just 0.8% annualised. However, we expect this to prove only a temporary setback rather than the start of a more serious downturn. Employment and incomes have continued to grow at a healthy rate, and a weighted average of the ISM manufacturing and non-manufacturing indices is consistent with GDP growth rebounding to at least 2% annualised in the second quarter. Along with signs that domestic price pressures are continuing to build, the Fed will soon be running out of reasons not to act. We expect the next rate hike to be in June, with the fed funds rate reaching 1.00% to 1.25% by year-end, and 2.25% to 2.5% by end-2017.
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