Weak GDP will give Fed reason to pause

Despite the more hawkish language in last week’s FOMC statement, the GDP data have significantly reduced the chances of a near-term rate hike. The economy has been growing at around 1% annualised for almost a year now and we suspect that Fed officials will want to see clear signs of an acceleration before they green light the next rate hike. That would appear to rule out a September rate rise, since the third-quarter GDP data won’t be available until October. Accordingly, we now anticipate only one single rate hike this year in December, taking the fed funds target range to between 0.50% and 0.75%. Furthermore, we also now forecast that the target range will be 1.50% to 1.75% at end-2017.