Our long-held belief that a rebound in core inflation and faster economic growth, partly due to fiscal stimulus, would prompt the Fed to hike interest rates four times this year is rapidly becoming the consensus view. In his congressional testimony earlier this week, the new Fed Chair Jerome Powell pushed the markets even closer to our view by insinuating that he was inclined to raise his economic outlook and possibly his interest rate “dot” too. The potential problem with Fed officials raising their expectations for economic growth now is that, despite the tax cuts, first-quarter GDP is at risk of disappointing yet again.
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